Morningstar - Fall 2019 - 53

A True Fixed-Income Anchor
Strong performance validates a sensible process.

BEST IDEAS: M ANAGER

Maciej Kowara

Wells Fargo Core Bond MBFIX

This article is adapted from the fund's Morningstar Global Fund Report dated
June 21, 2019.

Stats 06/30/2019

A well-defined process, validated by a strong performance record,
earns Wells Fargo Core Bond MBFIX a Morningstar Analyst Rating of Silver.
This strategy is benchmarked against the Bloomberg Barclays U.S. Aggregate
Bond Index and, true to its "core" name, sticks primarily to investmentgrade fare. What differentiates it is that the management team makes no
macro calls. The team avoids duration or yield-curve plays and makes
only very restrained adjustments to the fund's sector mix based on valuations.
Where the fund differs from the index is in security selection, the
focus of the team's energies. The resultant portfolio is a collection of many
small relative value decisions to overweight one credit, mortgage, or
structured bond versus another. Some of these positions are short-lived as
small mispricings may not take long to correct themselves. According
to management, the fund thrives in volatile environments, as these are the
periods in which mispricings are more likely to occur. This can increase
turnover, and the managers pay close attention to liquidity lest trading costs
eat away whatever advantage they may have gained.

With one exception, the strategy's management has been relatively
stable. In April 2018, Troy Ludgood, comanager since 2007 and co-head of
Wells Fargo's Montgomery Fixed-Income unit, transitioned to the less
time-demanding role of strategist for the team. However, remaining comanager
Tom O'Connor, who started at the fund in 2003, provides continuity, and
team veterans Jarad Vasquez and Maulik Bhansali were named comanagers in
the wake of Ludgood's departure. The fund's below-average pricing caps
its advantages. K
Maciej Kowara is an associate director, manager research, with Morningstar Research Services.

Morningstar Category
Intermediate Core Bond

Expense Ratio
0.42%

Fee Level
Below Average

5-Yr Annlzd Return
4.44%

5-Yr % Rank in Cat
28

Morningstar Pillars 06/30/2019
Process
∞ Positive

Performance
∞ Positive

People
∞ Positive

Parent
¶ Neutral

Price
∞ Positive

Growth of 10K 06/30/2019

$11.0K
10.70
10.6910.5

Wells Fargo Core Bond

10.0
Morningstar US Core Bond
07/2016

07/2018

Morningstar Style Box 05/31/2019

High

Interest-Rate Sensitivity

Mid

Morningstar Ratings 06/30/2019

Data surveyed
Period
from the
fund company. 3-Yr

Low
Ltd

9.5

07/2017

Credit Quality

The strategy's performance confirms the view that its approach has been
sensible. As of May 31, the fund's institutional share class outperformed both
its benchmark and its median (unique share class) peer for the trailing
10-year time period by comfortable margins. The fund succeeded on its own
terms as well. It aims to maximize its information ratio (a measure of riskadjusted active return), and it achieved one of the highest among all its peers
over the past 10 years.

Morningstar Analyst Rating
„

Mod

Mstar
Return

Mstar
Risk

Mstar
Rating

Average

QQQ

5-Yr

Above Avg Above Avg QQQQ

10-Yr

Above Avg Above Avg QQQQ
QQQQ

Overall Rating

Ext

Credit Quality 03/31/2019

Sectors

■ Fund

❙ Category Average

AAA
AA
A

3.0 8.5
7.6

18.4
13.9

BBB
BB

74.1

49.6

18.3

0.9 2.6

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Morningstar - Fall 2019

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