The investment approach for the U.S. Select Equity Fund, a new sub-fund for the Luxembourg-domiciled Wells Fargo (Lux) Worldwide Fund, is a style-neutral, all-cap strategy. The fund will invest principally in the equity securities of approximately 30 to 40 US companies, of any market capitalisation, that the team believes will offer the potential for capital growth. Mr. Weiss has employed the U.S. Select Equity strategy in institutional separate accounts since its inception in December 1996.
Ludger Peters, managing director, international business development, Wells Fargo Asset Management:
“We are pleased to offer U.S. Select Equity to our growing international client base and to diversify our product lineup by adding a fund with substantial exposure to US securities across the market capitalisation spectrum. Led by a proven veteran manager, we believe this opportunity will reach capacity very quickly”.
The fund’s investment process is based on Mr. Weiss’s decades-old private market value (PMV) concept—that is, the price that an acquirer would be willing to pay for an entire company. The portfolio management team determines a company's PMV by:
-) Conducting a fundamental analysis of a company's cash ﬂows, asset valuations, competitive situation and industry-speciﬁc factors.
-) Gauging the company's management strength, ﬁnancial health and growth potential. Emphasis is placed on a company's management, with meetings conducted with management in certain situations. The team focuses on the long-term strategic direction of a company.
The team then compares the PMV, as determined by these factors, with the company's public market capitalisation and invests in the equity securities of those companies in which they feel there is a signiﬁcant gap between the two.
At least two-thirds of the fund’s total assets will be invested in equity securities of US companies and up to one-third in equity securities of non-US issuers through depositary receipts as well as equities denominated in US dollars issued by non-US issuers. Futures, forward contracts, options or swap agreements, as well as other derivatives, may be used for hedging or efficient portfolio management purposes.
Although the fund is benchmark agnostic, the fund will be compared with a dual benchmark of the Russell 2000® Index and the S&P 500 Index.
The fund will be registered in the majority of jurisdictions where Wells Fargo Asset Management’s fund range is currently active. The fund will be available in retail and institutional share classes, with expected total expense ratios of 1.95% and 1.25%, respectively.
Richard T. Weiss—biography
Mr. Weiss is a managing director and senior portfolio manager for the Select Equity team at Wells Capital Management, one of the affiliated investment advisory companies within Wells Fargo Asset Management. He joined the company with its integration of Strong Capital Management in 2004. At Strong, he served as vice chairman and chief investment officer and portfolio co-manager of the Strong Advisor Common Stock Fund and the Strong Opportunity Fund. Before this, he was a portfolio manager and partner at Stein Roe & Farnham in Chicago where he began his career, starting as a research analyst. Mr. Weiss earned a bachelor’s degree in business administration from the University of Southern California and a master’s degree in business administration, graduating with distinction, from Harvard Graduate School of Business Administration.
The Select Equity team
Wells Fargo’s Select Equity team has used the same time-tested decision-making process for more than 20 years. The strategy has been continuously managed by the same portfolio manager since inception according to the following five principles:
1. Make research count—approximately 30 to 40 holdings (optimal combination of research intensity and alpha generation)
2. Identify change—business model, core competencies, competitive advantage, management
3. Listen for the quiet—"Research is to see what everybody else has seen and to think what nobody else has thought" (Albert Szent-Gyorgyi, Hungarian scientist and winner of Nobel Prize in Physiology or Medicine)
4. Distinguish noise from change drivers—two to three key issues drive share price performance
5. Exploit price/PMV discrepancies—share prices typically trade in a range of 50% to 80% of PMV, which is the price an acquirer would pay to purchase the entire company