Wells Fargo & Co.'s anticipated acquisition of Wachovia Corp. will create a new mutual fund behemoth.
Wells Fargo will control two fund complexes: its own funds, managed by San Francisco-based
Wells Fargo Funds Management LLC, which has $42.4 billion in assets, and Wachovia's funds, advised by Boston-based Evergreen Investment Management Co. LLC, which has $38.8 billion in assets, according to Morningstar Inc.
Seeking a "competitive advantage,"
Wells Fargo almost certainly will merge the groups, said Andrew Gogerty, a senior mutual fund analyst with Morningstar of Chicago.
"At the end of the day, they don't need multiples of everything," said Geoff Bobroff, an East Greenwich, R.I.-based mutual fund consultant.
The combined assets of the two groups will supplant MFS Investment Management of Boston as the 15th-largest mutual fund manager by assets, according to Morningstar.
Both
Wells Fargo of San Francisco and Wachovia of Charlotte, N.C., declined to comment about the future of their funds.
Combining the two groups won't be easy.
"One would suspect the transition will take time," Mr. Bobroff said.
MUCH TO PONDER
There are a lot of things to consider when merging fund complexes, such as manager performance, fees and compensation, Mr. Gogerty said.
Wells Fargo will also have to figure out whether it wants to have mutual fund "factories" in both Boston and San Francisco, Mr. Bobroff said.
It took Charlotte-based
Bank of America Corp. many years to complete its fund lineup after acquiring several fund complexes, said Burton Greenwald, a Philadelphia-based fund industry consultant.
Formerly Nations Funds, it re-named its mutual funds the Columbia Funds soon after it bought that group's parent, FleetBoston Financial Corp., in 2003.
Boston-based Columbia Management Group LLC, advised by Columbia Management Advisors LLC, is the 10th-largest fund company in the United States, according to Morningstar.
Like
Bank of America, Wells Fargo may decide to keep the name of the fund unit that it is acquiring, Mr. Bobroff said.
Thanks to extensive distribution relationships with broker-dealers, the Evergreen name has more "potential pull" with retail investors, he said.
Neither the Wells Fargo fund group nor the Evergreen complex, however, appears to have a particular advantage over the other when it comes to products.
"They do have some good investments," Hillary Fazzone, a fund analyst at Morningstar, said about the Wells Fargo funds.
One fund that she particularly likes is the Wells Fargo Advantage Municipal Bond Fund (SXFIX).
Over the long term, Ms. Fazzone said, the fund has done better than most such funds.
As of last Monday, it was down 7.54% year-to-date, placing it among the top 26% of its long-term-municipal-bond-fund category. It was down 7.16% for the year, placing it in the top 35% of its category; it was up 0.38% for the annualized three-year period, placing it in the top 13% of its category; and for the annualized five-year period, it was up 3.42%, putting it in the top 1% of its category.
Wells Fargo, however, could do more to improve its funds, Ms. Fazzone said.
'FEE REDUCTIONS'
"Our impression is, they could do more in terms of fee reductions," she said, noting that many Wells Fargo funds are more expensive than comparable funds.
Expenses are also a little too high on many of the Evergreen funds, said Greg Brown, a fund analyst with Morningstar.
Evergreen has also suffered from a high degree of manager turnover, though it hasn't had any major departures for some time, he said.
That, however, may change now that Wells Fargo has agreed to buy Wachovia.
A change in ownership usually guarantees some amount of management change, Mr. Brown said.
That is one reason that investors should be leery of investing in either funds from either Evergreen or Wells Fargo until the details of the merger have been worked out, he said.
"I would definitely wait on the sidelines," Mr. Brown said. "There's way too much turmoil right now."
E-mail David Hoffman at [email protected].
