Vanguard Wellington Fund’s Investor Shares returned –8.43% for the 12 months ended November 30, 2022, outperforming the fund’s benchmark, the Wellington Composite Index, which returned –10.80%. The index is weighted 65% large-capitalization stocks (as measured by the Standard & Poor’s 500 Index) and 35% high-quality corporate bonds (as measured by the Bloomberg U.S. Credit A or Better Bond Index). The fund’s Lipper peer group—Mixed-Asset Target Allocation Growth Funds—returned an average of –9.55%. The equity portfolio outperformed its benchmark, while the fixed income portfolio underperformed its benchmark.

Investment environment

U.S. stocks generally outperformed international stocks for the 12 months. The S&P 500 returned –9.21%, compared with –10.14% for the MSCI EAFE Index.

In December 2021, markets rebounded on strong corporate earnings, accommodative financial conditions, and robust global equity inflows despite COVID-19’s proliferation. Amid rising geopolitical instability, tighter monetary policy to address accelerating inflation, and fears about the global economic growth outlook, volatility rose sharply during the first quarter of 2022. Russia’s attack forced millions to flee Ukraine as fighting intensified and living conditions deteriorated rapidly in many cities. Prices for natural gas, select grains, and metals surged, and Brent crude oil prices topped $100 per barrel amid expectations that economic sanctions would cripple Russian energy exports and restrict supplies of key commodities.

Risk sentiment plunged in the second quarter as investors grew increasingly concerned about the economic toll of persistent geopolitical instability, soaring inflation, rising interest rates, and constrained supply chains. Inflation remained elevated globally and energy prices continued to rise. These challenges persisted into the third quarter with the Federal Reserve raising rates to rein in the highest inflation in decades. Stocks rallied sharply over the final two months of the period, and investor sentiment improved after softer-than-expected inflation in the U.S. and Europe fueled hopes that the Fed and the European Central Bank would begin to taper their pace of rate hikes, triggering significant declines in U.S. Treasury yields and the U.S. dollar.

Bond markets largely generated negative returns over the trailing 12-month period, driven by rising Treasury yields. Government bond yields moved sharply higher following ongoing monetary policy tightening. U.S. labor market strength persisted, while housing market resilience was tested by surging mortgage rates, lack of inventory, and home-price appreciation. Central banks across most developed markets reinforced their hawkish intentions and expressed a willingness to keep policy restrictive, even in the face of slower growth and weaker labor markets. The Bloomberg U.S. Aggregate Bond Index returned –12.84%, outperforming the higher-quality credit market as represented by the Bloomberg U.S. Credit A or Better Bond Index, which returned –14.46%. The yield of the 10-year Treasury note rose over the 12 months from 1.44% to 3.61%.

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