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Possible DWS Sale Creates Uncertainty for Its Funds

AMR bankruptcy doesn't ground mutual funds, and more.

Morningstar Fund Analysts, 12/05/2011

Reports that Deutsche Bank is considering the sale of its U.S. asset-management division are not surprising given the disappointing record of its DWS mutual fund arm here. But a possible sale also introduces uncertainty for investors in DWS' U.S. funds.

DWS grew in the United States primarily through a string of acquisitions in the early 2000s--including the purchase of Scudder Investments in 2002. The ensuing integration was piecemeal and contributed to DWS' disparate investment culture. DWS was implicated in the market-timing scandal in 2003. Since that affair, the firm has struggled to rebuild its business and reputation in the U.S. Starting in mid-2003, when the SEC initiated its market-timing investigation, DWS funds have suffered average estimated quarterly net outflows of $682 million through October 2011, according to Morningstar data.

DWS has attempted to make its lineup more competitive by reducing its number of fund offerings and transferring management responsibilities for 10 of its equity funds, including some of its largest, to more-established management teams in Frankfurt, Germany. The lineup does have a few bright spots, including its municipal funds, but these efforts haven't been enough to tip the scales. More than half of the firm's funds rank in the bottom half of their respective categories over the past three and five years, and there are signs that the firm's investment culture has continued to deteriorate since Morningstar issued its stewardship report in 2010.

Talk that DWS' U.S. fund business is up for sale heated up after Deutsche Bank announced last week that it put its global asset-management business up for strategic review. It doesn't seem that the sale includes the DWS mutual fund businesses in Europe and Asia.

It is uncertain how a possible sale will impact DWS' U.S. funds, so investors in those funds should be vigilant for any developments that could ensue. Meanwhile, Morningstar analysts are also keeping a close eye on the situation and will be looking again at the fund family’s Stewardship grade in light of events.

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Morningstar fund analysts cover more than 1,700 mutual funds and write regular commentary covering fund industry news, fund investing trends, picks, portfolio planning, international investing, and more.

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