Tuesday, February 7, 2012

Wellington's View on Microsoft

I just received a copy of the November 30, 2011 Annual Report for the Vanguard Wellington Fund (VWELX), a balanced fund with a long, consistent track record  Ed Bousa, manages the equity portfolio which was about 66% of net assets at fiscal year end.  The management team wrote this about  Microsoft (MSFT).

"We increased our position in Microsoft, as we see an extremely attractive risk-to-reward ratio at current valuations. The price of the stock suggests market participants do not have particularly high expectations, yet earnings growth at the company remains strong, driven in part by businesses' cyclical computer upgrades.  Cash-flow generation is solid and may be under appreciated by the market as well.  In our view, the upside potential of this stock more than adequately compensates investors for the downside risks they bear."

On the other side of the coin, the biggest detractor to the fund's performance, in absolute terms, for the year was their holding of Bank of America, which they reduced.  Wellington Management Company has always been populated by sharp, value-oriented investment managers, but they like every market participant didn't get the risk-reward ratio right for Bank of America.  

[Nothing in this post should be construed as investment advice or as a recommendation of any mutual fund or equity security.]

No comments: