Wells Fargo Plans to Offer Its First ETF

Wells Fargo is preparing to enter the ETF business.

The bank has filed registration notices with the Securities and Exchange Commission for the Wells Fargo Exchange-Traded Funds Trust and for an Ultra Short Duration Income ETF, which will presumably be the trust’s first offering.

The short duration income ETF would invest in a variety of securities including government and corporate debt, municipal and mortgage-backed securities, commercial paper, repurchase agreements, CDs and more and have an effective duration of one year or less. It would focus on investment-grade debt and would “normally invest” at least 25% of assets in securities banking industry debt.

The ETF appears to be an actively managed fund given the discussion of investment risks in the filing, although active management is not mentioned directly.

“This filing is consistent with WFAM’s focus on expanding and enhancing our product lineup to best meet the investment needs of our clients,” according to a spokeswoman’s statement, referring to Wells Fargo Asset Management.

Dave Nadig, chief investment officer and director of research for ETF Trends, tweeted that it was “weird to have Wells go from being literally one of the very very first index shops to one of the very very last to get into ETFs.” 

Wells Fargo Investment Advisors had offered index mutual funds through a partnership it formed with Nikko Securities in 1989 but subsequently sold that operation to Barclays Bank in 1995, which in turn eventually sold its asset management arm, Barclays Global Investors, to BlackRock.

Jeffrey Ptak, head of global manager research for Morningstar, tells ThinkAdvisor that big mutual fund companies no longer seem content to take a wait-and-see approach toward ETFs given the “continued shift towards passive, fee pressure, and other developments,” such as the elimination of brokerage fees and the COVID-19 market selloff early in the pandemic. “The costs of ‘not’ being in the ETF market apparently now outweigh the costs of being in it (those costs including self-cannibalization),” Ptak said.

Ptak added that ultra-short duration ETFs “have been popular stepping stones among big mutual fund families that are getting into the ETF market because of their relatively low expenses compared to other types of active strategies. Such ETFs operate in “reasonably deep markets” that tend to be very liquid, Ptak said.

They are also favored by advisors as alternatives to money market funds for their clients, according to Ben Johnson, director of global exchange-traded fund research at Morningstar. He said he would not be surprised if Wells Fargo rolled out “a full suite of low-cost core ETFs” as Schwab and BNY Mellon have done and if the ETFs gain “traction within its own advisory business.”

Earlier this month, Wells Fargo reported a $2.4 billion loss in the second quarter, its first quarterly loss since the Great Financial Crisis in 2009.

— Check out Wells Fargo Reports Loss, Vows to Cut $10B on ThinkAdvisor.