By Ian Salisbury
The Vanguard Wellington fund made it through the Great Depression, World War II, the dot-com bust, and every crisis since then. It's now facing another challenge -- and not because of the war with Iran or bad investing bets. Investors are moving on from its classic style.
That could be a mistake. The fund, founded in 1929, epitomizes Vanguard Group founder Jack Bogle's values -- own a balanced mix of stocks and bonds, and keep your costs down. While that may be unfashionable in today's world of prediction markets, cryptocurrencies, and highflying artificial-intelligence bets, Vanguard Wellington has long proven its mettle and is likely to keep doing so.
The mutual fund has a lot going for it. Run by Wellington Management -- where Bogle worked before Vanguard -- the fund boasts more than $110 billion in assets and an admirable record. Over the past decade, it has returned 9.2% a year on average. That's good enough to put it in the top 17% of balanced funds that follow the classic 60/40 stock/bond strategy, according to Morningstar. Over the past 30 years, the fund has returned 8.7% a year, ranking it in the top 15% of its category.
Low fees, Bogle's mantra, have long helped it keep up with market indexes. The Investor share class, with a $3,000 minimum investment, has an annual expense ratio of 0.24%. Admiral shares, with a $50,000 minimum, are even cheaper at 0.16%. Those fees aren't as low as those of Vanguard's index funds, but are highly reasonable for an actively managed fund where the average fee is 0.59%, according to Morningstar.
Despite these attractions, investors appear to be moving on from the fund. Over the past decade, it's seen a steady trickle of net outflows, including about $8.8 billion last year. The fund faces a host of headwinds. One is demographics. Baby boomers whose savings drove the fund industry's growth for decades are now spending down their nest eggs in retirement. Meanwhile, younger investors lean toward target-date funds, the current default options in many retirement plans, or exchange-traded funds, which they can trade throughout the day like stocks.
While there is no ETF version of the Vanguard Wellington fund, the firms have rolled out a handful of active ETFs, such as the Vanguard Wellington Dividend Growth Active ETF, which hit the market in November.
Then, of course, there is the fund's bond-heavy 60/40 investment strategy itself, which has become deeply unfashionable. Stocks, after all, are still basking in the glow of one of the biggest bull markets in history, having returned an average of 14% a year over the past decade. Bonds, by contrast, have returned just 1.7% a year during that time frame, and are only just recovering from the annus horribilis of 2022, when they lost 13%, on average.
Given the market volatility sparked by the U.S. attack on Iran, Vanguard Wellington may be just what investors need to ride out the turmoil. Its stock and bond portfolios are both designed with a "downside orientation" in mind, says Wellington portfolio co-manager Daniel Pozen. "The fundamental principle of this fund is to keep people invested for the long term," he adds. "Outperforming in a down market is priority No. 1."
Pozen, who oversees the stock portfolio, has shared leadership of the fund with bond manager Loren Moran since 2021. The pair, who rarely talk to the press, sat down with Barron's in March.
Calling Vanguard Wellington a 60/40 fund is inevitable, but also something of a misnomer. Technically, the fund targets a mix of 65% stocks and 35% bonds, making it slightly more aggressive than some competitors. While that may help explain its long-term outperformance, it's worth noting the fund has managed to beat most of its category rivals without adding much risk. Its beta, a measure of volatility, is 0.87, slightly lower than the average for its Morningstar category, at 0.91. That means if the market dropped 10%, Wellington would likely see an 8.7% decline, while the typical balanced fund would decline by 9.1%
Pozen says his goal is to beat the S&P 500 index by one percentage point a year, on average, over the long term, while also providing downside protection. That means the stock portfolio generally hews to the S&P 500's overall sector makeup. To find extra return, Pozen relies on the expertise of Wellington's army of career industry analysts -- as well as two working on the fund itself -- to help him pick winners and avoid losers in each sector. Given the fund's size and liquidity needs, there are only about 300 stocks it could conceivably buy. It owns 80.
Despite the fund's defensive bent, Pozen isn't shy about Big Tech. While he admits he's worried about an AI bubble (who isn't?), the fund's top holdings include Alphabet, Nvidia, and Microsoft. "I don't want to say we are Pollyanna-ish; I don't want to say we are maximum bullish," he says. "We are constantly vigilant and paranoid, but for now the combination of valuation and fundamentals keeps us very positive."
Pozen points out that Microsoft, the subject of a recent Barron's cover story , trades at just 16 times 2028 earnings, its lowest valuation relative to the S&P 500 in a decade. Investors are worried AI will eat into Microsoft's productivity software business, still about 40% of revenue. Pozen says that, given businesses' security concerns over implementing AI, it's more likely Microsoft will serve as a "gateway" for AI firms like Anthropic to reach corporate customers. With revenue and earnings growing in the double digits, and a sterling balance sheet, "Microsoft is as attractive as it has almost ever been," he says.
Pozen says the stock should deliver returns in the mid- to high teens over the next few years, matching earnings growth. He also thinks Microsoft's price/earnings ratio could ratchet up to 20 from 16 times, which would boost the share price another 25%.
While Pozen is standing by his Big Tech names, he also thinks the market is ready for the next phase of the AI rally -- companies that actually use AI to grow their businesses. One potential beneficiary is hospital operator HCA Healthcare, which has historically grown revenue by 4% to 6% a year. He thinks AI can help it grow 6% to 8% by streamlining burdensome tasks like managing nursing shifts and scheduling surgeries. While Pozen doesn't keep formal price targets, he expects the stock to deliver compound annual total returns in the low teens over the next three to five years.
He also likes BlackRock, owner of the popular iShares ETF brand, which he notes has steadily grown revenue over the past decade but hasn't meaningfully expanded margins. He expects that to change dramatically in the next three to five years thanks to AI, which will boost operating margins by as much as 10 percentage points to around 50%.
"Think about what BlackRock's business is," he says. "It's a lot of knowledge workers doing similar tasks with data, an unbelievable distribution network" that reaches institutional investors around the globe.
While BlackRock currently trades at around 13 times 2028 earnings, Pozen thinks it could trade at a multiple in the high teens, which translates into an upside of 50% to 75% for the stock, he estimates.
When it comes to bonds, Moran is busy playing defense. It isn't just because bonds are designed to be the fund's ballast. She has also grown increasingly cautious about what she's seeing in the market.
The U.S. economy entered 2026 in a fairly strong position, she notes, with the Federal Reserve poised to cut interest rates, tax cuts expected to buoy consumer spending, and deregulation benefiting businesses. Fast-forward to today and businesses are still looking to cut red tape, but tax refund checks are quickly being eaten up by higher gas prices, and rate cuts appear to be off the table. "The biggest question right now is, are we moving into a stagflationary environment?" she says. "There's very little risk of recession priced into markets."
While Vanguard Wellington's fixed-income benchmark targets high-quality corporate bonds, she currently has just over 20% of her sleeve invested in Treasuries. Given that corporate credit spreads remain at historic lows despite all the economic turmoil, owning government bonds "doesn't cost us that much and gives us optionality" to pounce on bargains she or Pozen spot in markets.
One area she is particularly cautious about is debt issued by tech giants like Alphabet, Amazon.com, and Oracle to build data centers. So-called hyperscalers sold more than $100 billion in bonds last year, quickly becoming a significant part of the investment-grade bond universe. Vanguard Wellington does own some of these, she says, but adds that she's picky because yields don't always reflect all the new debt these companies have been taking on.
"They had historically almost zero debt on their balance sheets," she says. "That's shifting really dramatically, very quickly."
Sectors she likes include utilities and telecoms, with stable free cash flows, strong balance sheets, and business models that work in all kinds of economic conditions. "These are not sectors that show a lot of earnings volatility," she says. "Regardless of your economic circumstance, everybody wants to keep their cellphone on."
One reason investors have soured on 60/40 funds recently is their abysmal returns in 2022, when major stock and bond indexes both fell at once. Vanguard Wellington declined 14.3% that year, slightly worse than the category average of minus 13.6%, according to Morningstar.
Still, Moran argues, the fund is better positioned today. The yield on the bond portfolio is 4.6% as opposed to 2.1% in 2022, giving it a much bigger cushion against any potential bond price declines.
Ultimately, she says, investors will rediscover the fund's time-tested strategy.
"The Wellington fund has a recipe that has lasted through market cycles, " says Moran. "We are totally cognizant there are periods of time when bonds did not provide the same ballast, but over time, they do."
Write to Ian Salisbury at ian.salisbury@barrons.com
This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
April 03, 2026 02:00 ET (06:00 GMT)
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