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Popular Large-Growth Fund to Close

Sentinel readies a fund makeover and more ...

Morningstar Fund Analysts, 12/16/2011

The popular Wells Fargo Advantage Growth SGROX is closing to new investors after seeing net assets skyrocket from $2.9 billion at the start of 2011 to more than $7 billion today. The fund, which is slated to close Jan. 31, 2012, has been a top performer over the short and long term. Its three- and 10-year trailing returns as of Dec. 14 rank in the top 2% and 1%, respectively, of the large-growth category. Managers Tom Ognar, Bruce Olson, and Joe Eberhardy have a highly disciplined stock-picking process, which includes criteria like solid organic growth and proven managers. Although the fund is in the large-growth category, it has an all-cap mandate, and 18% of its assets have been in small-cap stocks and 31% have been in mid-caps, on average, over the past five years. The fund's closing was likely necessary to maintain the team's execution, particularly with small caps, which have lower liquidity.

In fact, this is the second Wells Fargo Advantage fund managed by the team to close this year. Wells Fargo Advantage Emerging Growth WFGTX, a successful small-growth fund, closed in the second quarter. That fund's assets are less than $900 million, reflecting the proactive approach that is being taken to protect the team's strategy for investors. Both the funds' subadvisor, Wells Capital Management, and the funds' board have stepped up shareholder-friendly moves as of late. This past month, they cut fees for several share classes of Wells Fargo Advantage Growth to pass on economies of scale created by asset growth. However, the fund remains expensive overall as fee cuts have not kept up with the fund's asset growth historically.

Fees were not cut for the Administrator share class of the Growth fund even though it has been receiving a large portion of the fund's asset growth. That share class is much cheaper than the front-load A share, and advisors can gain access to it via a wrap account with as little as $2,500. However, the 0.96% expense ratio of the Administrator class has not been cut since 2005 despite its net assets growing from $69 million that year to $1.9 billion in 2011. The fund itself will continue to experience inflows even after its closure, however, as existing shareholders and certain groups of new investors, like retirement plans, can continue to invest.

Sentinel Fund to Get a Makeover 
Sentinel has named growth-oriented managers to its Sentinel Mid Cap Value SYVIX, and the fund's name will change to reflect its new direction. On Jan. 13, 2012, the fund's new name will be Sentinel Mid Cap II, and it will be run by a trio of in-house managers: Betsy Pecor, Charles Schwartz, and Matt McGeary. An SEC filing shows that team will reposition the fund so that it closely mirrors a mid-cap growth fund it manages, Sentinel Mid Cap SNTNX. Last summer, Sentinel fired the subadvisor for the mid-cap value fund. Then, in November, shareholders voted down Sentinel's proposed replacement, Crow Point Partners, partly because of concerns that Crow Point didn't have a long-enough track record running mid-cap value offerings.

Goldman Sachs (Finally) Discovers Dividends
Goldman Sachs Asset Management's announcement this week that it would acquire Rising Dividend Growth ICRDX is an unusual move, and not just because the fund has a mere $160 million in assets compared with GSAM's $715 billion in assets under management. Goldman Sachs typically does not use subadvisors, but if the deal is approved by the fund's shareholders, the subadvisor, Dividend Growth Advisors, will remain in place (although the fund will get a new name). In addition, Goldman hasn't placed an emphasis on pure dividend-focused strategies in the past. Goldman's move follows several years of rising popularity of equity-income funds as investors have sought higher yield in a low-interest-rate environment.

Like its name suggests, this fund seeks stocks that have a history of boosting their dividends. It also has a large slug of high-yielding master limited partnerships that center on energy infrastructure such as pipelines.

Key Manager Out at Neuberger Berman
Basu Mullick left asset manager Neuberger Berman last week after managing a particularly volatile fund strategy for the past 13 years.

Mullick had led Neuberger Berman Partners NPRTX and Neuberger Berman Regency NBRVX since 1998 and 2005, respectively. He was known for an investing style that featured bold macro bets that often resulted in dramatic ups and downs in performance. While the fund's 10-year record remained solid, it was also one of the most volatile in the category. In 2011, poorly performing energy, commodity, and financials positions weighed on results and placed the fund in the bottom decile of the peer group.

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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