SAN FRANCISCO (MarketWatch) – An overlooked part of Wells Fargo & Co.’s deal to buy Wachovia Corp. late last year was the merger of two of the largest firms in the mutual-fund industry. But it may not stay overlooked much longer.
As part of the acquisition, Wells Fargo Advantage Funds, the fund unit run by San Francisco-based Well Fargo (WFC), will take over Wachovia’s Evergreen Investments, giving rise to a firm with nearly 200 mutual funds and more than $250 billion in assets under management.
Now, as it works toward completing the merger, Wells Fargo Advantage Funds is pushing its brand out to an ever-growing audience of potential investors.
“I think we’re gaining credibility,” said Karla Rabusch, president of Wells Fargo Advantage Funds. “We’re getting a lot of looks [from investors].”
The numbers this year back up the sentiment. At a time when investors have been flocking to bond funds, Wells Fargo Advantage Ultra Short-Term Municipal Income Fund (SMUAX) has been the best-selling tax-free bond fund in the industry. Through August 31, the fund had seen flows of $4.5 billion, according to Morningstar Inc.
And the Wells Fargo line was the second-best selling industry through July, according to the firm. Data from Morningstar shows the firm had $5.91 billion in net flows through August, ranking it the seventh-best selling fund firm, not including exchange-traded funds or money-market funds.
Rabusch added that Wells Fargo has more funds on the Morgan Stanley Smith Barney platform than any other third-party fund line.
As of Aug. 31, Wells Fargo had $166 billion in mutual-fund assets in 111 funds. That will grow dramatically once it completes its integration with Evergreen, which had $75 billion in 86 mutual funds at the end of August.
Rabusch is confident the merger will go through smoothly, in part because the structure of the two firms is very similar: Both are run as umbrellas for individual – and independent – fund-management teams.
Independence
“Throughout all our acquisitions, we’ve allowed the portfolio-management teams to remain independent,” said Rabusch.
Wells Fargo provides operational and compliance support for those teams, located around the country – among them a growth team in Indianapolis, a small-cap team in New York and a fixed-income team in Walnut Creek, Calif.
Moreover, Well Fargo has an investment review team of 16 analysts based at its San Francisco headquarters that chooses which teams should manage its funds. Managers are often hired from outside the firm.
Rabusch noted, however, that the firm has actually fired more internal teams from its funds than external teams.
“Having the internal managers know that they’re held to this standard keeps them on their game,” she said.
“I think we started this approach well before the rest of the industry,” said Andrew Owen, head of the investment review team.
Owen said while there would be overlaps and consolidation of funds that Wells Fargo and Evergreen offer – he wouldn’t provide details – there were areas where Evergreen would add to the Wells Fargo line.
They will help, “I think, especially in international and global offerings,” he said, citing Evergreen’s London-based international bond-management team as well as a team in Boston that runs international and global stock strategies.
Greg Brown, fund analyst at Morningstar, said the merger means Wells Fargo will be taking on a number of highly-rated Evergreen fund managers.
Brown named Margie Patel, manager of Evergreen Diversified Capital Builder Fund (EKBAX); Andrew Cestone, manager of Evergreen High-Income Fund (EKHYX); James Tringas, manager of Evergreen Special Values Fund (ESPAX); and Walter McCormick, manager of Evergreen Fundamental Large Cap Fund (EVVTX).
But the arrival of these managers may bring its own problems, said Brown. For instance, while he likes the Tringas-run fund, Wells Fargo has its own version, Wells Fargo Advantage Small-Cap Value Fund (SSMVX), that’s been a success. The firm hasn’t said how it’ll handle such overlaps, he said.
Overall, said Brown, the merger will be a “win-win” for investors. Echoing Rabusch, he said that the firm “is certainly making a push” in trying to reach everyday investors.
But, he added, “I don’t know if they’ll ever get to the stature of Vanguard Group or T. Rowe Price Group (TROW).”
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