Wellesley: An Income Favorite

02/02/2016 9:00 am EST

Focus: FUNDS

Genia Turanova

Editor, Leeb Income Performance

With interest rates so low for so long, investor interest in fixed income has dwindled. The Fed’s rate hike, the first in nearly ten years, probably won’t change that, explains Genia Turanova in The Complete Investor.

Still, fixed income has a place in a well-diversified portfolio. A good way to obtain some is with a balanced fund, which invests in bonds and stocks alike.

Our favorite remains the redoubtable Vanguard Wellesley Income fund (VWINX), with more than $41 billion under management. The fund hasn’t missed a beat since we last reviewed it in March 2015. If anything, its relative performance improved.

It now ranks in the second percentile of its peer group for the last five years, the seventh percentile for the last three years, and the top 2% for the latest 12 months.

The fund’s longer-term record is also stellar: the first percentile for the last ten years and third percentile for the last 15 years.

Inaugurated in 1975, this actively-managed fund is rated five stars and gold by Morningstar. The fund is run by two managers: W. Michael Reckmeyer and John Keogh, at the helm since 2007 and 2008, respectively.

It belongs to a conservative-allocation subgroup. Its fixed-income portion is about 61% of the total and features investment-grade bonds, with an average effective maturity of 9.3 years and average duration of 6.5 years.

A bit less than 20% of these bonds are from developed countries other than the US. Its equity holdings are mostly companies that historically have paid above-average dividends or that are likely to increase dividends.

Of the 59 stocks held as of last count; the top five are Microsoft (MSFT) and Merck (MRK), Wells Fargo (WFC), JP Morgan Chase (JPM), and Johnson & Johnson (JNJ).

Turnover at 59% is relatively low. And typical of a Vanguard fund, the cost can’t be beat: with a 0.25% expense ratio, it’s 69% cheaper than the average balanced fund. Vanguard Wellesley Income fund is a buy.

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