Morningstar Investor Conference 2012 - 7

Introducing the Wells Fargo Advantage Absolute Return Fund

Opportunity is knocking

For some of your clients, traditional investments alone may not be getting them where they want to be financially. But with our new Wells Fargo Advantage Absolute Return Fund, you can offer these clients a nontraditional investment option that invests in areas of the market where the fund manager believes the best opportunities can be found while seeking to minimize downside risk. Consider Wells Fargo Advantage Absolute Return Fund for: n Expertise. Tap into the experience of GMO LLC, the renowned institutional-level money manager. n Flexibility. Unconstrained by allocation ranges or benchmarks, the fund has flexibility in pursuing up markets. n Portfolio positioning. We’ll work with you on how to position the fund to complement your clients’ holdings.

Want to turn opportunity into a competitive advantage?
GMO
W HITE P A P ER
March 2012

Adding Absolute Return to an Investment Diet
Ben Inker

W

hile investors could not help but enjoy what the markets served up in the 1990s, the 2000s have been a very different story. Not only have equity markets gone nowhere for over a decade, but the volatility has left investors feeling nauseous. The old recipe – take x% stocks, add y% bonds, simmer for two or three decades, rebalance occasionally – doesn’t seem as tasty as it used to, leaving investors hungry for something new. Money managers are nothing if not imaginative cooks, however, and have come up with a recipe for a new dish, called absolute return. The aroma is appealing, but before digging in, diligent investors would be well-advised to learn a bit more about the ingredients, the recipes for putting them together, and how to make absolute return part of their well-balanced diet.

Ingredients: What Absolute Return Mutual Funds Are
At its heart, absolute return is a very simple concept. An absolute return mutual fund generally attempts to make money without regard for the performance of any particular asset class. Principally, an absolute return mutual fund considers risk in terms of losing actual money rather than underperforming a particular benchmark. It is not that the ingredients of an absolute return fund are necessarily different. The difference comes in the mindset of the manager. The mutual fund business is generally built around style boxes, specialization, and relative performance. For example, a fund describes itself as a large cap value fund, invests in a fairly restrictive set of stocks, and is judged by some combination of its performance versus its stated benchmark, its “style” benchmark as determined by Morningstar or Lipper, and its competition. Investment managers know this, and manage their funds accordingly, making sure not to stray far from their style box – “style drift” is an almost unforgivable sin in the eyes of many investment consulting manager who feels that small cap growth stocks are actually the most attractive place to invest at a given point in time may well move his own money into small cap growth, but is extremely unlikely to change the composition of his large value fund. Absolute return managers may act differently. For them, a security only makes sense in the portfolio if it is offering a good expected return relative to its risk of loss. The security’s weight or inclusion in a particular benchmark is irrelevant. The managers may use any of a variety of different methods for determining this attractiveness – e.g., value, momentum, macro-economic forecasting, long-term historical risk/return characteristics – but the goal is always to earn good absolute returns and to worry about absolute, not relative, risk. In a sense, investors are asking the managers to manage their money the way they would manage their own, which should hopefully mean investors are getting their best thinking.
For Investment Professional Use Only. Not for Distribution.

Order our exclusive white paper, “Adding Absolute Return to an Investment Diet,” written for Wells Fargo Advantage Funds by GMO’s industry veteran, Ben Inker.

Call 888-368-7742 or go to wellsfargoadvantagefunds.com/absolute

NOT FDIC INSURED • NO BANK GUARANTEE • MAY LOSE VALUE

Absolute return funds are not intended to outperform stocks and bonds in strong markets, and there is no guarantee of positive returns or that the fund’s objectives will be achieved. Mutual fund investing involves risks, including the possible loss of principal. Consult a fund’s prospectus for additional information on risks. Carefully consider a fund’s investment objectives, risks, charges, and expenses before investing. For a current prospectus and, if available, a summary prospectus, containing this and other information, visit wellsfargoadvantagefunds.com. Read it carefully before investing. The funds are distributed by Wells Fargo Funds Distributor, LLC, Member FINRA/
SIPC, an affiliate of Wells Fargo & Company. 208383 03-12. MC-3503.
http://www.wellsfargoadvantagefunds.com/absolute http://www.wellsfargoadvantagefunds.com/absolute http://www.wellsfargoadvantagefunds.com
Morningstar Investor Conference 2012

Table of Contents for the Digital Edition of Morningstar Investor Conference 2012
