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Wells Fargo to Drop Equity Exposure by 10-22% in Target-Risk Funds

August 17, 2020

Wells Fargo is changing allocations in its WealthBuilder target-risk funds away from equities and into inflation-protected assets, according to news reports.

The company is also renaming the $1.8 billion suite of WealthBuilder funds “Spectrum” to project its new approach as well as to have more flexibility in the five funds, FA-IQ sister publication Ignites writes, citing a new filing.

In four of the five funds, Wells Fargo is lowering equity exposure by 10% to 22%, changing exposure to alternatives up or down 1% or 2% and ramping up allocation to inflation-protected assets, according to Ignites. Additionally, “neutral” allocations are going up by 10% to 15%, the publication writes.

Wells Fargo isn’t changing allocations in the fifth fund, WealthBuilder Equity Fund, according to Ignites.

Furthermore, the company is giving fund managers more leeway in using a futures overlay strategy introduced in 2017, under which the fund taps exchange-traded futures contracts to decrease equity exposure ahead of predicted higher volatility or increase equity exposure during times of lower volatility, according to the publication. Managers will be able to change a fund’s effective equity market exposure by up to 10%, while currently the exposure fluctuations are 5%, Ignites writes. 

The changes go into effect October 30, according to the filing cited by the publication.   

Wells Fargo’s WealthBuilder Funds have held up better than many of their peers, Ignites writes. The Growth Balanced Fund, for example, posted 8.2% year-to-date returns through Wednesday, 6% higher than the median return of a fund in Morningstar’s 50%- to-70%-equity allocation category, according to the publication. 

At the same time, however, the suite of WealthBuilder funds saw more than $1.1 billion in net outflows since the start of 2018, Ignites writes. 

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By Alex Padalka
  • To read the Ignites article cited in this story, click here if you have a paid subscription.
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Tags:  Investment strategies , Portfolio management , Morningstar , Wells Fargo

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