- Wellington runs six funds for Vanguard that have outperformed
- Walter Morgan, Wellington founder, would become Bogle mentor
After Jack Bogle was fired by Wellington Management Co. in 1974, he didn’t wash his hands of his old employer. Instead he retained the firm to run money for his startup, Vanguard Group. Today those funds are beating almost all of their peers.
Wellington manages six large active mutual funds with a total of $240 billion in assets for Vanguard. The six have outperformed 87 percent of their peers on average over 10 years, according to data compiled by Morningstar Inc. The Vanguard Health Care Fund is the top-performing U.S. mutual fund over the past 30 years, thanks to Wellington.
The funds tend to thrive in difficult markets -- and lag behind during robust times -- by focusing on high-quality stocks and bonds. Over the past year, as the Standard & Poor’s 500 Index is little changed, three of the Wellington-run funds have beaten more than 90 percent of rivals, according to Bloomberg data.
"They have a top-notch global industry research staff and those insights are shared throughout the firm," said Dan Newhall, a principal at Vanguard.
Wellington’s Big Hits
Philadelphia accountant Walter L. Morgan founded the Wellington Fund -- the oldest U.S. mutual fund that balances stocks and bonds to reduce risk -- in 1928, a year before the stock market crash. He guided it through the Great Depression and beyond.
In 1951 Morgan hired Bogle, 86, who eventually rose to run Wellington Management until a merger and internal strife led to his ouster. The next year in 1975 Bogle started Vanguard, which would build its name with index funds while Wellington managed some of its active pools.
Years later Bogle praised the traditions of a balanced portfolio and the fair treatment of clients established by Morgan and adopted by Vanguard. Upon Morgan’s death in 1998, Bogle called him "my mentor."
Today, Boston-based Wellington runs about $300 billion for Vanguard in 21 funds, many of them as a co-manager with other firms. Wellington manages a total of $927 billion for endowments, central banks, sovereign wealth and mutual funds in a range of assets classes and styles.
No House View
Clients describe Wellington as a series of boutiques with a centralized research staff. Each group has broad discretion on how it manages money. There is no house view, no chief investment officer.
“They are one of the few shops that is good at lots of things,” said Andrew Arnott, president of John Hancock Investments, which uses Wellington to manage about $11 billion in 16 different funds.
Sara Lou Sherman, a spokeswoman for Wellington, declined to comment for this story.
The $83.8 billion Vanguard Wellington Fund is the biggest of the six funds run solely by the Boston firm. It has returned an annualized 8.6 percent over the past five years, topping 92 percent of rivals, according to Bloomberg data. The fund has about 65 percent of its money in stocks, led by blue-chips like Wells Fargo & Co., Microsoft Corp. and Merck & Co. as of Dec. 31, and 35 percent in bonds.
Light on Junk
Wellington’s Donald Kilbride has just finished 10 years running the $26.1 billion Vanguard Dividend Growth Fund. He beat 97 percent of rivals over that stretch, according to Morningstar, looking for companies with the potential to increase their dividends.
“The reason to buy Dividend Growth is Don Kilbride,” Daniel Wiener, editor of Independent Adviser for Vanguard Investors, wrote in his most recent newsletter.
Even the $16.9 billion Vanguard High-Yield Corporate Fund tends to hold bonds on the defensive side of the risk spectrum. As of Dec. 31, the fund had 47 percent of its money in bonds rated BB, the highest level of junk debt, compared with 36 percent for the average high-yield fund, according to Morningstar.
The fund has beaten 94 percent of peers over the past five years. It tends to lag behind during strong credit markets, analyst Elizabeth Foos wrote in a note on Morningstar’s website, “but stays ahead when concerns about economic growth and credit quality take their toll.”
Not all the funds Wellington runs for Vanguard have been successful. The $891 million Vanguard Capital Value Fund trailed 88 percent of peers over the past five years, according to Bloomberg data.
Like all Vanguard funds, the Wellington-managed ones are inexpensive. They charge investors between 21 and 34 cents per $100 invested, roughly one-quarter to one-third the prices of average mutual funds in their categories, according to Morningstar data.
Walter Morgan headed the Wellington Fund for 42 years until he retired, a long tenure that set an example at the firm. Many managers spend their entire careers at Wellington, said Michael Rosen, CIO at Angeles Investment Advisors in Los Angeles, where he helps oversee $25 billion.
“If you have been there for 20 years, you are the new kid at the firm,” Rosen said.