Investing

After Lagging Its Benchmark Last Year, Can Vanguard VWENX Bounce Back and Outperform in 2025?

Rich Duprey

Published: January 17, 2025 1:31 pm

When it comes to index investing, investors really don’t have to look much further than the Vanguard family of funds. Founder John Bogle pioneered the passive investing trend by establishing a family of low-cost funds that seek to match the market and various indices, depending upon the approach sought.

The Vanguard Wellington Fund (MUTF:VWELX) is Vanguard’s oldest fund, founded in 1929, and is the country’s oldest balanced fund. It is known for its balanced approach, blending equity and fixed-income investments to offer a moderate risk profile. This fund has long been a staple for investors seeking growth with a cushion of income and lower volatility compared to pure equity funds.

Its sister fund, the Vanguard Wellington Fund Admiral Shares (MUTF:VWENX), is newer, having been created in May, 2001. It is similar in virtually all respects to the original, except it comes with a lower 0.18% expense ratio and requires a larger initial investment of $50,000. That may make it more attractive to those with more money to invest, though the two walk virtually lockstep.

Since inception, the Admiral Shares have generated over 500% cumulative returns, and though it generated 14.9% returns in 2024, the mutual fund lagged behind its benchmark, the Wellington Composite Index. It warrants a closer look at why this might have happened and what prospects lie ahead.

A balanced portfolio with a moderate approach

VWENX typically allocates about 60% to 70% of its assets to stocks, focusing on established, dividend-paying companies across various sectors. The remaining 30% to 40% is invested in bonds, primarily investment-grade corporate bonds, which provide a steady income and act as a buffer during market downturns.

This strategy aims at providing both capital appreciation and income, making it appealing for those not comfortable with the high volatility of stock-only investments yet still wanting market exposure.

The core of its portfolio

Wellington owns 71 different stocks, but its core holdings include blue-chip companies known for stable dividends and financial health, alongside a conservative bond selection. The management team employs a disciplined, research-intensive approach, focusing on long-term value rather than short-term market movements. 

This conservative strategy has historically served the fund well, especially during periods of economic uncertainty or when markets correct from overvaluation.

As conservative as it is, its top holdings look like a tech investors dream portfolio:

^{Source: Vanguard Wellington Fund Admiral Shares.}

Why CWENX underperform in 2024 

There are several factors influencing VWENX’s performance last year. While the fund’s top holdings are some of the biggest tech companies and some of the largest companies in the world, it also possesses significant number of value stocks and income investments. While the stock market saw significant swings in 2024, tech and growth sectors outperformed value and income sectors where VWENX holds substantial investments. 

The bond component of the fund was also influential. It is sensitive to interest rate changes. Despite the Federal Reserve initiating rate cuts in September, they are still at historically high levels, pressuring the value of the bonds held in the portfolio, as bond prices move inversely to interest rates.

Yet it is not uncommon for well-diversified funds to underperform their benchmark during times when the market has done exceptionally well. That’s why you can see that not only did VWENX underperform last year, but over the past three years. 

Over longer periods, and since inception, the fund has outperformed its benchmark. While looking at the returns compared to the S&P 500 or a growth-oriented fund, the results may not seem spectacular, but remember, investors in the Vanguard Wellington Fund Admiral Shares are taking a balanced approached to investment. They are gaining income while also protecting their downside.

Can VWENX stage a comeback?

Given its conservative positioning, VWENX could indeed stage a comeback if the market shifts back towards favoring stability and income over high growth. The fund’s focus on high-quality assets might resonate well in an environment where investors seek refuge from volatility or prioritize income.

When considering VWENX for your investment strategy, consider that its balanced approach suits those with a moderate risk appetite, offering a blend of growth and income with less volatility.

That makes this fund ideal for longer-term investors who can ride out short-term market fluctuations for more stable long-term gains. If your portfolio needs diversification away from high-risk assets or if you’re looking to temper equity exposure with bond investments, VWENX could be a strategic choice.

Key takeaway

While Vanguard Wellington Fund Admiral Shares might have underperformed in 2024 due to market dynamics not aligning with its investment strategy, its historical resilience and conservative management style suggest potential for recovery at lower risk. Investors should align their decision to include VWENX with their overall financial goals, tolerance for risk, and the time they plan to invest. 

As with any investment, it’s crucial to keep an eye on how macroeconomic conditions evolve, as these will significantly influence the performance of balanced funds like VWENX.