Fidelity's bond shop is busy, plus more.
DWS appears to have finally found a suitor. Deutsche Bank DB, the parent firm of the mutual fund family, recently submitted a filing with the SEC saying that it had entered into exclusive negotiations with New York City-based Guggenheim Partners to sell a series of assets estimated at $535 billion, including its $46 billion U.S. fund complex. These assets had been on the auction block for roughly four months. While there was no official word on price, media outlets like the Financial Times speculated it was between $2.0 billion and $2.7 billion. A DWS official stressed that the negotiations were still in the early stages and that no deal had been finalized.
It's too early to tell if DWS shareholders will see major changes to their funds if any deal goes through. Patched together via a series of acquisitions in the late 1990s and early 2000s, DWS has struggled with manager turnover and poor performance, and with trying to build a single corporate culture around its far-flung management ranks in cities such as Boston, New York, Louisville, Kentucky, and Frankfurt, Germany. A new parent won't fix those problems. Indeed, the deal could exacerbate turnover. For example, in recent years the firm shifted management responsibilities for its large-cap and international equity funds to its Frankfurt office. Deutsche Bank has reportedly said it will retain its asset management divisions in Asia and Europe, so it's unclear if the Frankfurt-based fund managers would stay at Deutsche, move to Guggenheim, or be retained by the funds' board in a subadvisory capacity. (DWS declined to comment on specifics until the deal is signed.)
Any deal will certainly elevate Guggenheim's profile. The firm, founded more than a decade ago using Guggenheim family money, has been aggressively growing itself into a diversified financial-services firm. In 2009 it bought Claymore, the exchange- traded-fund and closed-end-fund provider, and then six months ago it purchased RydexSGI, the mutual fund and ETF firm. Those rather small deals--mainly focused on passive investments--would pale in comparison to any DWS acquisition. If Guggenheim closes on DWS, its assets under management could quintuple from its current $125 billion. It will also have a retail mutual fund footprint as large as firms like Putnam, Thornburg, Dreyfus and AllianceBernstein AB. The deal could also make sense since DWS' solid muni-bond funds would fit with Guggenheim's existing $78 billion fixed-income operation.
The deal may not be a signal additional industry consolidation is near. Pioneer Investments, which is also owned by a foreign parent, seems to have taken itself off the auction block after a year of looking for a buyer. Last week, Pioneer CEO Roger Yates outlined a five-year plan designed to grow the business and remain out of the hands of an acquirer.
Fidelity's Bond Shop Gets Busy
Fidelity recently made several changes to its fixed-income operation, shuffling around some managers and launching three new funds.
The Boston-based fund company announced Alan Bembenek will now be a comanager on Spartan U.S. Bond Index FXSTX, Fidelity Series Inflation-Protected Bond Index FSIPX, Spartan Short-Term Treasury Bond Index FSBIX, Spartan Intermediate Treasury Bond Index FIBIX, and Spartan Long-Term Treasury Index FLBIX. In addition, Franco Castagliuolo will join the team running Fidelity Inflation-Protected Bond FINPX and Fidelity Strategic Real Return FSRRX. In some cases, the two Fidelity veterans are filling new roles on the funds' management teams. But they are also filling vacancies at Spartan U.S. Bond Index and Fidelity Series Inflation-Protected Bond Index created by the departures of Ford O'Neil and Bill Irving, respectively. Manager changes are always causes for concern. But in this case, O'Neil and Irving remain at the firm, and given Fidelity's team-based approach on the fixed-income side, a manager can exit without disrupting the strategy, especially at index funds like these. Indeed, the lead managers at each of these funds remain in place.
Fidelity also announced it will soon launch three new fixed-income funds: Spartan Inflation Protected Bond Index, Fidelity Global Bond, and Fidelity International Bond. The latter two are part of a broader expansion of Fidelity's U.K.-based bond team under new CIO Mark Flaherty, a company veteran appointed to that position in January 2012. The U.K. team consists of 20 investment professionals, including new hire Jamie Stuttard, who previously worked at Schroder Investment Management. Stuttard is listed as lead manager on the Global Bond and International Bond funds. This team also manages Fidelity Global High Income FGHNX, which was launched in 2011.
Wells Fargo, GMO Team Up on Absolute Return Fund
Wells Fargo WFC launched an absolute return fund that will target a positive return over inflation during a market cycle, regardless of market conditions. Wells Fargo Advantage Absolute Return Fund will be subadvised by GMO LLC, which is known more for institutional strategies, though the fund will be available to both retail and institutional investors.