Following in the footsteps of other behemoth financial institutions, Wells Fargo & Co. (NYSE: WFC) is dipping its toes into the exchange traded funds.
Wells Fargo is considering launching its first ETF within three to six months after witnessing the success of other banks turn ETF sponsors, like JPMorgan Chase & Co (NYSE: JPM) and Goldman Sachs Group (NYSE: GS), reports Dani Burger for Bloomberg.
According to a recent Securities and Exchange Commission exemptive relief filing, Wells Fargo is creating a Wells Fargo Exchange-Traded Funds Trust, Wells Fargo Funds Management and Wells Fargo Funds Distributor to handle its ETF business.
Wells Fargo executives said they have planned ETF options based on its quant credentials, crafting smart-beta or multifactor strategies that combine two ore more investment themes into a passive index-based security.
“We believe it’s a good time to take a look at things like low volatility, investing factor-based ETFs that are not so dependent on market-weighted stocks,” Kirk Hartman, global chief investment officer of Wells Fargo Asset Management, told Bloomberg. “Multifactors, to me, that’s the key to success.”
Multifactor smart-beta ETFs have been an increasingly popular strategy in recent years. Smart beta ETFs have seen $45 billion in net inflows globally year-to-date through November and are on course for a record year, compared to the $30 billion added for all of 2015.
Supporting the ongoing growth in smart beta strategies, factors such as quality, momentum, value, size and minimum volatility have been drivers of returns across asset classes and helped shore up shortcomings of traditional market cap-weighted index funds.
Wells Fargo first expanded into robo-, quants-based strategies two months ago with the acquisition of Analytic Investors LLC, which gave the bank both passive and active multifactor offerings and is now converting those open-end mutual funds into smart beta ETFs.
“It’s still early, but this multifactor stuff, especially if it’s packaged to be competitive with commercial indexing, will be really, really big,” Harin De Silva, president of Analytic Investors, told Bloomberg. “The thing we’re wrestling with is if it’s sufficiently differentiated because the last thing the world needs now is another ETF.”
Wells Fargo is also looking into active ETF options as well as including fixed-income funds based on factors.
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