Waddell & Reed

Good mutual fund performance and financial-adviser support are what makes Waddell & Reed Financial Inc. stand out among asset managers, according to industry watchers.

The publicly traded firm has a number of strong funds, including the popular $3 billion Waddell & Reed Asset Strategy Fund (UNASX) and the $15.9 billion Ivy Asset Strategy Fund (WASAX). Both are managed by Michael Avery, a senior vice president and chief investment officer of Waddell & Reed Financial.

The Waddell & Reed fund is advised by Waddell & Reed Investment Management Co., and the Ivy fund is advised by Ivy Investment Management Co., both units of Waddell & Reed Financial.

“What’s interesting about these two funds is, they are not shy about making substantial asset allocation changes,” said Michael Herbst, an analyst with Morningstar Inc. But Mr. Avery has proven that he is able to manage the risk, Mr. Herbst said.

Year-to-date through Sept. 4, the Waddell & Reed Asset Strategy Fund was up 16.12%, placing it in the 47th percentile of its world allocation category. Its one-year return of -3.51% placed it in the 34th percentile, its annualized three-year return of 8.77% in the second percentile, its annualized five-year return of 15.72% in the third percentile and its annualized 10-year return of 11.14% in the ninth percentile, according to Morningstar.

The Ivy Asset Strategy Fund — which is managed in an identical fashion to the Waddell & Reed fund but doesn’t yet have an annualized 10-year record — had similar returns.

Waddell & Reed has also gained recognition for its $4.7 billion Ivy Global Natural Resources Fund (IGNAX), managed by Fred Sturm.

Its “well-diversified portfolio may not necessarily damp volatility … but it’s still a good long-term option,” Jonathan Rahbar, an analyst with Morningstar, wrote July 30.

The fund’s year-to-date return through Sept. 4 placed it in the ninth percentile of its natural-resources fund category. Its one-year return placed it in the 62nd percentile, and its annualized three-, five- and 10-year returns placed it in the 64th, 60th and 36th percentiles, respectively.

If Waddell & Reed is “known for any one thing, it’s known for its strong investment results,” said mutual fund consultant Geoff Bobroff.

But fund performance is just part of the reason Waddell & Reed has enjoyed the support of advisers, said Thomas Butch, a senior vice president and chief marketing officer of Waddell & Reed Financial.

“I’d like to think that our success reflects a couple of things: the reliability of both our investment products and the people who take them to market,” he said.

In addition to the firm’s having successful funds, its sales representatives understand how a fund works and can help explain how that fund can best be used in a portfolio, Mr. Butch said.

It hasn’t always been easy for Waddell & Reed. In April 2005, the firm agreed to pay a total of $32.5 million to settle allegations by regulators that it improperly sold variable annuities, as well as a lawsuit filed by Torchmark Corp., its former parent.

And in July 2006, Waddell & Reed said that three of its units had settled with regulators after charges of market timing in Waddell & Reed Advisors funds. Without admitting or denying guilt, Waddell agreed to pay a total of $77 million.

In the wake of the scandals, Keith Tucker resigned as chairman and chief executive in April 2005.

He was replaced as chief executive by the firm’s president and chief investment officer, Henry Herrmann, and as chairman by Alan Kosloff, who had been a director.

Although the appointments of Mr. Herrmann and Mr. Kosloff didn’t represent a clean break with the past, Mr. Herrmann especially has been effective at rebuilding the company’s image.

“Aside from putting the company’s legal and regulatory difficulties behind it, Herrmann has been hard at work improving the productivity of Waddell & Reed’s sales force of registered investment advisers and expanding the distribution of its products through third-party broker-dealers and advisers,” Greggory Warren, an analyst with Morningstar, wrote Aug. 17.