VWINX: Overview of Vanguard Wellesley Income Fund

Reviewed by Cierra MurryReviewed by Cierra Murry

The Vanguard Wellesley Income Fund (VWINX) is a hold-over of the Vanguard acquisition of the Wellington Management Company. This mutual fund seeks to provide long-term growth of income and a high and sustainable level of current income, along with moderate long-term capital appreciation. Established in 1970, the Wellesley Income Fund has become one of the more successful income-oriented balanced funds for conservative investors.

The Wellesley Income Fund Investor Shares requires a minimum investment of $3,000, with an expense ratio of 0.23% that is considered to be quite low for its category. An otherwise identical institutional version of the fund also exists, the Vanguard Wellesley Income Fund Admiral Shares (VWIAX), which requires a minimum of $50,000 but also comes with a lower 0.16% expense ratio.

In this article, we provide an overview of the fund, along with several fund highlights to help you determine if VWINX is an appropriate investment to add to your portfolio.

Key Takeaways

• The Vanguard Wellesley Income Fund is a conservative balanced income fund whose portfolio is composed of fixed-income vehicles and stocks.
• This mutual fund is designed for medium- and long-term investors who want steady income and who can accept modest risk levels and modest capital appreciation.
• The fund was established in 1970 and is a holdover from when Vanguard purchased Wellington Management in 1975.
• VWINX is rated highly by Morningstar and outperforms its benchmark.

Investment Objective

The fund’s overall investment objective is to seek consistent total returns made up of current income from bonds, dividends, and modest capital appreciation.

Although the Wellesley Income Fund is categorized as an income fund, it utilizes a more balanced approach to achieve its income objective. Balanced funds typically offer a 60% allocation to stocks, but VWINX is somewhat unique in that it allocates only one-third to stocks and roughly two-thirds to bonds. Because of its focus on bonds, this fund is best suited to those investors looking for portfolio income and only modest capital gains; for instance, among those close to retirement.

The fund’s smaller weighting to stocks is concentrated on companies that offer above-average dividend yields or increasing dividends. This tends to provide a higher quarterly income distribution (currently offering a 2.03% trailing twelve-month yield) than non-income-focused balanced funds, and it is intended for medium- to long-term holders.

Among its fixed-income investments, VWINX invests approximately 60% to 65% of its assets in investment-grade, fixed-income securities to generate a reasonable level of current income. These holdings include investment-grade corporate bonds, U.S. Treasuries, and government agency bonds, as well as mortgage-backed securities (MBS).

1970

The year the Wellesley Income Fund was established.

Portfolio Management

The portfolio management team is led by Loren L. Moran and Matthew C. Hand. Both are senior managing directors at Vanguard’s subsidiary, Wellington Management.

Moran, who holds a Chartered Financial Analyst (CFA) designation, has been responsible for managing the fund’s bond portion since 2017. She’s worked with investment management since 2006. Moran completed her undergraduate degree from Georgetown University.

Hand, who is also a CFA, has a bachelor of science degree from the University of Pennsylvania. He has been part of the fund’s equity advisory team since 2021. His investment management career goes back to 2004.

Investment Portfolio

The $49.77 billion fund utilizes a balanced approach that emphasizes fixed-income securities with up to two-thirds invested in investment-grade corporate bonds and U.S. government bonds. The other portion is invested in large-cap, dividend-paying stocks.

As of June 2024, the fund’s portfolio is comprised approximately of 37% stocks, 61.94% bonds, and 0.72% cash. It holds 71 blue-chip stocks and more than 1,200 individual bond positions with an average duration of 10.4 years and yield-to-maturity of 5.3%.

VWINX 10 Largest Holdings

While the fund is only weighted roughly one-third to stocks, equities dominate the portfolio’s top weights. This is because while the fund holds more than twelve hundred bond positions, it only has positions in dozens of individual stocks. Each of these stocks is a dividend-paying blue-chip company, across a range of industry sectors.

Investment Performance

The income-generating balanced approach has worked very well for investors. The fund has generated an average annual return of nearly 10% since its inception. More significantly, the fund consistently demonstrates its ability to limit its downside while outperforming its benchmark. During the 2008 stock market collapse, for example, it declined just 10%, which was less than its category and far less than stock-only funds.

As of July 2024, the fund has an average 3-year pre-tax annualized return of 0.82%, 4.20% for the last five years, and 5.00% over 10 years—results that have consistently earned it a four- or five-star rating from investment fund research firm Morningstar.

Advantages and Disadvantages of VWINX

Advantages

As with many Vanguard mutual funds, one of the key advantages of VWINX is its relatively low management fees. That said, there is a minimum investment requirement that could dissuade certain retail investors. The fund is highly-rated and invests in high-quality securities, but is an income-focused balanced fund that is weighted far more to bonds than most of its peers.

Disadvantages

One thing to note is that VWINX has an annual turnover rate of 53%, meaning that despite its low management fee, the fund changes more than half of its holdings each year. This means that there is a greater likelihood fund holders will be exposed to taxable events that can detract from top-line returns.

Pros

• Low management fees

• Outperforms benchmark

• Highly-rated by Morningstar

Cons

• Minimum investment requirement

• More conservative than most balanced funds

• High annual turnover

Is VWINX a Good Investment?

VWINX is a high-quality mutual fund that consistently outperforms its benchmark. It is a conservative income-focused fund, making it most suitable for long-term investors seeking regular income and only modest capital gains.

Is Vanguard Wellesley a Good Fund?

Both Vanguard and the Wellesley Management brands have a great track record and are well-known and well-respected in the investment management world. The fund itself currently holds nearly $49.77 billion in assets and has been around since 1970. It is among one of Morningstar’s highly-rated funds.

Is the Vanguard Wellesley Fund Tax Efficient?

Because it is mainly an income fund, and because it mostly holds taxable bonds and dividend-paying stocks, with only around 1/3 of the equity holdings pay qualified dividends, it is unlikely to be incredibly tax efficient. With a 53% turnover rate, it furthermore may create more taxable events each year.

What Is the Best Vanguard Income Fund?

The best-performing fund of any category in any given year can change, and past performance is never a guarantee of future returns. It is therefore difficult to definitively say which of Vanguard’s many high-quality income funds is best. Still, Investopedia also recommends the Vanguard High-Yield Tax-Exempt Fund Investor Shares (VWAHX), the Vanguard High-Yield Corporate Fund Investor Shares (VWEHX), and the Vanguard Intermediate-Term Tax-Exempt Fund Investor Shares (VWITX), based on their performance and characteristics.

The Bottom Line

The Wellesley Income Fund could be considered as a core holding for conservative investors looking for a solid stream of income with some capital appreciation. The fund offers upside potential with limited volatility. It could also be a good satellite holding for moderate or aggressive investors revamping the equity portion of their portfolio and who want consistent performance. The fund is not without its risks, as its large exposure to bonds could react negatively to increasing interest rates.

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