Does Wells Fargo Add Value For Investors?
October 5, 2015
by Larry Swedroe
Morningstar Investment Conference: Using Annuities In A Portfolio For Added Stability
Assets in actively managed mutual funds have been a consistent source of revenue growth for Wall Street banks. But would investors have been better off in passively managed funds? I’ll answer that question for Wells Fargo and then for the group consisting of the four largest banks.
In an April column, New York Times reporter Nathaniel Popper noted that, over the last few years, an expanding line of mutual funds created by big Wall Street banks (Goldman Sachs, JPMorgan Chase, Morgan Stanley and Wells Fargo) has been drawing billions of dollars from investors.
There is a crucial question for investors: Have the actively managed mutual funds now offered by these banks actually been good investment choices?
In previous articles, I examined the performance of funds managed by Goldman Sachs, JPMorgan Chase and Morgan Stanley. This article looks at the funds managed by the final bank Popper discussed in his article, Wells Fargo. The analysis for this article was completed a couple of months ago, at the same time comparative analyses were undertaken for the other commercial banks covered in this series.
Popper noted that in the past 10-year period, Morningstar data showed that just 25% of Wells Fargo’s mutual funds outperformed their analyst-assigned benchmarks. According to Morningstar, as of July 31, 2015, Wells Fargo had more than $122 billion in assets under management in mutual funds, up from less than $90 billion at the end of 2011.
Active versus passive
As is my practice, I’ll compare the performance of actively managed equity funds offered by Wells Fargo to the similar funds from two prominent providers of passively managed funds, Dimensional Fund Advisors (DFA) and Vanguard. (Full disclosure: My firm, Buckingham, recommends DFA funds in constructing client portfolios.)
To keep the list to a manageable number of funds and to make sure I examine long-term results through full economic cycles, I’ll cover the 15-year period from April 2000 through March 2015. I’ll use the lowest-cost shares when more than one class of fund is available for the full period. In cases where Wells Fargo has more than one fund in an asset class, I will use the average return of their funds in the comparison.
The table below shows the performance of 17 mutual funds managed by Wells Fargo in seven asset classes – 14 domestic funds and three international funds.