The Wells Fargo Advantage Multi-Sector Income Fund (NYSE Amex:ERC) (the Fund) announced today several changes to its investment guidelines and strategies, as well as the addition of a new portfolio manager to its existing portfolio management team. The Fund is a closed-end, fixed-income fund managed by Wells Fargo Funds Management, LLC, and subadvised by Wells Capital Management Incorporated and First International Advisors, LLC.
The changes are designed to enhance the Fund’s ability to invest in potentially higher-yielding fixed-income sectors. The Fund’s portfolio will begin to reflect these changes over the coming months, as the Fund begins to implement the revised investment guidelines and strategies.
The Fund’s investment objective remains the same: to seek a high level of current income consistent with limiting its overall exposure to domestic interest-rate risk. In pursuing this objective, the Fund has historically utilized a diversified bond strategy, allocating 20%–60% of its assets to each of three distinct types of securities or “sleeves”: high-yield bonds, international bonds from developed markets, and adjustable-rate agency mortgage securities.
The revised investment guidelines and strategies permit the Fund to invest in a broader range of security types and adjust the percentage of the Fund’s assets that can be allocated to each specific sleeve as described below. While these changes may increase the overall income generated by the Fund’s portfolio, they also are expected to result in an increase in the overall risk profile of the Fund’s portfolio. There can be no assurance that these changes will result in an increase in income or shareholder distributions.
- High-yield bond sleeve:
- This sleeve will continue to invest primarily in a diversified portfolio of non-investment-grade corporate debt securities, including floating-rate high-yield bank loan securities.
- The percentage allocation range is changing to 30%–70% of the Fund’s total assets from the previous allocation range of 20%–60%.
- International bond sleeve:
- This sleeve is being renamed the “International/Emerging Markets” sleeve. This sleeve will continue to invest in foreign debt securities, but the sleeve is now permitted to invest in emerging market debt securities, as well as developed market debt securities (including obligations of foreign governments or governmental entities, foreign corporations, or supranational agencies denominated in various currencies). Accordingly, the Fund is now subject to the additional risks associated with investing in emerging market debt securities (see below).
- The percentage allocation range is changing to 10%–40% of the Fund’s total assets from the previous allocation range of 20%–60%.
- Adjustable-rate agency mortgage securities sleeve:
- This sleeve is being renamed the “Mortgage/Corporate” sleeve. This sleeve may continue to invest in adjustable-rate mortgage-backed securities, but the sleeve is now also permitted to invest in fixed-rate mortgages—including mortgage-backed securities, asset-backed securities, and collateralized mortgage obligations—and investment-grade corporate bonds. The mortgage securities can consist of both nonagency mortgage securities and securities issued or guaranteed by the U.S. government, its agencies, or its instrumentalities.
- The percentage allocation range is changing to 10%–30% of the Fund’s total assets from the previous allocation range of 20%–60%.
- The weighted average credit quality of this sleeve is expected to be investment-grade (BBB-/Baa3 or better), as opposed to AAA/Aaa.
- The investment guideline that required that the weighted average life of this sleeve be 1 year to 6 years has been eliminated.
- The investment guideline that required that the average duration of this sleeve be between 0.5 years and 1.5 years has been eliminated.
- A new portfolio manager, Janet Rilling, CFA, CPA, has been added to the portfolio management team. Ms. Rilling manages investment-grade corporate bond portfolios and is part of a broader team at Wells Capital Management Incorporated, one of the Fund’s investment subadvisers, that includes portfolio managers Michael Bray, CFA, and Christopher Y. Kauffman, CFA.
- In addition to the sleeve-specific changes described above:
- The Fund will no longer seek to maintain an average maturity of the Fund’s portfolio of between 5 years and 7 years.
- The Fund will no longer seek to maintain an overall credit quality of the Fund’s portfolio of BBB- or better.
- The Fund may now purchase illiquid securities, which the Fund defines as securities that cannot be disposed of within seven days in the ordinary course of business at approximately the value at which the Fund has valued the securities. Previously, the Fund was permitted to continue to hold securities after they became illiquid (but not to purchase illiquid securities).