The dust has yet to settle on this fund family thanks to manager departures and acquisitions.
Wells Fargo Funds Management plans eight fund mergers across several categories for its Advantage funds, as manager departures and acquisitions continue to force the fund family to remake itself. Some of the mergers, which are slated for the third quarter of 2011, hold the promise of lower costs through economies of scale as well as a better strategy through the surviving fund. Generally, however, the mergers seem to be a checkerboard of pros and cons depending on the fund.
Glass Half Full?
For example, Wells Fargo Advantage Core Equity EGIAX, after having suffered the December, 2010 departure of talented managers Walter McCormick and Emory Sanders, is slated to merge with Wells Fargo Advantage Opportunity SOPFX. Given Core Equity's $844.7 million in assets and Opportunity's assets of $1.5 billion, the resulting economies of scale could drive down the cost of the surviving and pricey Opportunity fund. However, investors could see a change in the investment profile of the mid-cap Opportunity fund, as Core Equity is solidly large cap. Meanwhile, Opportunity is managed by a Wells team led by veteran Ann Miletti, who has had considerable success with small- and mid-cap stocks but less so with large caps. Either way, investors in Core Equity would have dealt with Miletti's team, which took over the fund when McCormick and Sanders left.
The proposed merger of McCormick and Sanders' other previous charge, Wells Fargo Advantage Classic Value ETRAX, into Wells Fargo Advantage Equity Value WLVAX is also a mixed bag for these two large-cap funds. Classic Value temporarily had fallen into the hands of James Tringas, who mostly specializes in small caps, so Classic Value may have proved to be out of his bailiwick longer term. However, Systematic Financial Management, Equity Value's subadvisor, has barely kept pace with the Russell 1000 Value since the fund's 2003 inception.
A Merger and a Closure
Meanwhile, the proposed merger of Wells Fargo Advantage Small Cap Growth MNSCX into Wells Fargo Advantage Emerging Growth WEMAX is also triggering a proposed closure of the surviving fund, which will have about $1.3 billion in assets. We applaud the move, as a small-cap fund of more than $1 billion can limit investment opportunity and potentially affect returns. That said, Wells is allowing investors who "confirm indications of interest" in the fund before the proposed June 20 closure to invest in it through Dec. 31, 2011. This could work against the benefits of the closure if a large amount of assets flow into the fund between now and then.
That said, veteran manager Tom Ognar and his small-cap team has been able to stitch together solid performance at Emerging Growth with much lower volatility than Small-Cap Growth had under James Philpott, who left Wells this past March. But, given Emerging Growth's mere $27.9 million in assets, the merger likely will not drive down the cost of the surviving fund. Philpott's departure also spurred proposed mergers for his other previous charges, Wells Fargo Advantage Mid Cap Growth WFMBX and Wells Fargo Advantage Growth Opportunities ESMGX, which are slated to merge into Wells Fargo Advantage Enterprise SENAX and Wells Fargo Advantage Discovery STDIX, respectively.