Vanguard ETFs have become a juggernaut in the world of passive investment management. They are widely used across retail, institutional, and retirement plans as an effective way to get low-cost, liquid, tax efficient, and dependable exposure to both stocks and bonds. You simply can’t go wrong when choosing one of their funds as a core or tactical holding within your ETF portfolio.
One of the keys to their success is the ability to classify an ETF as a separate share class of their existing mutual fund platform. This creates the benefit of a built-in track record and a comparative index from which to evaluate even newly established ETFs. Think of them as just porting the mutual fund strategy to a vehicle with lower costs that you can trade throughout the day.
While the Vanguard ETF business is an unqualified success, in my opinion, there is still room for growth into active funds. Yeah, I said it. Vanguard needs to port some of their active strategies to ETFs as well.
Many investors overlook the actively managed suite of Vanguard mutual funds because they don’t follow the traditional “high cost, weak performance” mantra that dogs other fund companies. They have partnered with world-class asset managers to keep fees low and successfully navigate the markets for their investors for decades.
Let’s hope Vanguard considers my wish list of active funds that would make great ETFs…
Vanguard Wellesley® Income Fund Admiral™ Shares (MUTF:VWIAX)
This income-oriented mutual fund takes a multi-asset approach to its portfolio construction methodology by owning 35-40% stocks and 60-65% bonds. This strategy is geared towards investors that want steady income and capital appreciation with a conservative mindset.
Vanguard Wellesley® Income Fund Admiral™ Shares (MUTF:VWIAX) has been managed by Wellington Management Company LLP for 40 years and has accumulated $50 billion in total fund assets. The fund managers own just 61 stocks that are primarily value-focused. This includes names like Microsoft Corporation (NASDAQ:MSFT) and Wells Fargo & Co (NYSE:WFC). They also balance that exposure with high quality Treasury and investment grade corporate bonds with an average duration of 6.4 years.
Furthermore, the fund charges an all-in expense ratio of just 0.15% annually. That is tremendously cheap compared to its peer group and it has posted very steady returns over its tenure as well. Vanguard lists the 10-year annualized return of Vanguard Wellesley® Income Fund Admiral™ Shares (MUTF:VWIAX) at 6.74% through 12/31/16.
I have owned Vanguard Wellesley® Income Fund Admiral™ Shares (MUTF:VWIAX) for clients of my wealth management firm for several years now because I have yet to come across a competitor that can offer similar or better qualities. The fund is cheap, its performance is outstanding, and it strikes just the right balance of risk and reward for more cautious investors.