Possible Options for the Wells Fargo Growth Fund



Wells Fargo Growth Fund performance

In this article, we’ll specifically outline the performance of the Wells Fargo Growth Fund – Class A (SGRAX), which is one of the classes available for retail investors. The fund is invested in stocks of companies like Tractor Supply Company (TSCO), LKQ Corp. (LKQ), Jack in the Box (JACK), CarMax (KMX), and Fortinet (FTNT).

From a purely NAV (net asset value) return standpoint, the SGRAX had a terrible one-year period until March 18, 2016, coming in second last among its peer group. When we refer to the peer group, we mean the group of 12 funds chosen for this review. For our return comparison, we have chosen two ETFs: the Vanguard 500 ETF (VOO) and the iShares Russell 1000 Growth ETF (IWF).

For evaluating benchmark-related metrics, we’ve chosen the S&P 500 as the benchmark for all funds in this review, which VOO tracks.

Article continues below advertisement

Other metrics

SGRAX’s standard deviation, or the volatility of returns, in the one-year period ended March 18 was 19.2%. This is much higher than the S&P 500’s 16.7% as well as the peer group’s average of 18.4%.

The fund’s risk-adjusted returns, calculated via the Sharpe Ratio, were negative for the one-year period ended March 18. Evaluating a negative Sharpe Ratio may be misleading, so we’ll avoid that. The ratio for 2015 had placed the SGRAX tenth among its peers.

The information ratio, calculated with the S&P 500 as the benchmark, was negative for the one-year period ended March 18. As with the Sharpe Ratio, we can’t evaluate a negative information ratio. The information ratio shows the consistency of a fund manager along with measuring his or her ability to generate excess returns over a benchmark. The higher the reading, the better the consistency. For 2015, the fund’s information ratio had ranked it ninth.

A note to investors

Apart from below-average Sharpe and information ratios for 2015, SGRAX’s alpha had placed it among the bottom three funds as well. The situation has not seen any improvement in the one-year period ended March 18, 2016, or in YTD 2016. Investors should try to assess how the fund’s strategy has performed over market cycles before taking a call on investing in the fund. Meanwhile, current investors with a short-term horizon may wish to consider the option of reducing their allocation to the fund.

In the next article, we’ll look at the Alger Spectra Fund – Class A (SPECX).


More From Market Realist