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Wells Fargo to Roll Out Its First ETF

December 22, 2016

Wells Fargo is set to join the $4.1 trillion ETF market with plans to roll out a multifactor ETF, Bloomberg reports. The bank plans to launch its first ETF within three to six months, Wells Fargo executives tell the newswire.

The company opted for a multifactor ETF, which combines two or more investment themes in one product, to create an ETF less dependent on market-weighted stocks, Kirk Hartman, global chief investment officer of Wells Fargo Asset Management, tells Bloomberg.

Multifactor smart beta ETFs were the most popular strategy for new ETF offerings this year, according to the newswire.

Analytic Investors, which Wells Fargo acquired in October, will be designing the company’s new ETF, Bloomberg writes. Analytic already has several passive and active multifactor strategies that it’s converting into ETFs, according to the newswire. The company has already helped Wells Fargo put out a one-factor mutual fund focused on a low-volatility strategy, which has so far attracted $26 million in assets, Bloomberg writes.

For Wells Fargo’s first ETF, Analytic is focused on creating a product differentiated from the array of ETFs already on the market, Harin De Silva, president of Analytic, tells Bloomberg.

Part of that strategy is adding factor risk parity to the product, which would allow a portfolio’s assets to be partitioned based on their volatility — what De Silva calls “true diversification,” according to the newswire.

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But Wells Fargo’s ETF will face stiff competition from more experienced rivals, including JPMorgan Chase and Goldman Sachs, according to Bloomberg.

Goldman first created a quantitative investment team in 1989, for example, according to the newswire. Wells Fargo will also have to compete with ETF giants BlackRock and Invesco, which have been able to attract billions of dollars to their smart-beta strategies, Bloomberg writes.

It’s unclear how Wells Fargo plans to use its army of financial advisors to push the ETFs, or how its wealth management clients will take to the product. The bank has opted to stop paying brokers commissions on loan products, for example, following a scandal over how its branch employees opened up to two million fake accounts for customers. Wells Fargo paid a $185 million fine in September over the opening of the accounts. In addition, Finra opened a hotline earlier this month for former Wells Fargo brokers who believe they were fired for failing to go along with or for reporting the practice.

By Alex Padalka
  • To read the Bloomberg article cited in this story, click here.