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Nationwide Grows Family Through Adoptions


The Nationwide Funds Group is taking two tacks to drive growth of assets.

One move seems counterintuitive: In June, Nationwide began eliminating redemption fees on all mutual funds in its retail and retirement plans. The move, which is expected to find favor with new retail investors in the funds, became effective Aug. 1.

The firm has also embarked on adopting funds (i.e. buying) from other fund families and employing the former investment advisor as the funds' new subadvisors to grow its assets at a faster clip.

Money Management Executive spoke to Michael Spangler, president of Nationwide Funds Group, and Timothy Rooney, Head of product management & research at NFG, about the firm's growth plans and where it sees the need to fill in the gaps for advisors and retail investors.

Can you give us some background on the firm?

Spangler: We are part of the Nationwide Financial Group of companies that are wholly owned by Nationwide Insurance. We have about $43 billion in AUM across 86 different products. A lot of what we do is distributing funds through nationwide retirement plans, life insurance contracts and variable annuity products. We also sell funds externally.

One of the main things we do is to deliver asset allocation solutions, which is about $18 billion in AUM. Another big part of what we do is as a manager of managers we have over 30 subadvisors that manage somewhere in the order of 47-48 different strategies. We have a heritage that dates back 80 years and a couple of mutual funds that have a 50-year heritage.

On the product side, we've done a lot to continue bundling solutions. Last year we rolled out an alternative allocation fund, Nationwide Alternatives Allocation Fund (NWAAX), subadvised by Goldman Sachs and it includes seven different asset classes such as global real estate, emerging market debt, emerging market stocks, commodities, TIPS, international bonds and high-yield bonds.

From the people perspective, it's really been around building an institutional process for researching, selecting and monitoring subadvisors. Most of the talent has been in place now for about three years. We've really built out this process to be a quantitative, multi-factored institutional approach. There's a large and even bigger qualitative review and we score that qualitative component about what we think about the investment process as well as the portfolio management talent. And then we do a lot of work around investment, operational, legal and compliance risk.

What is the average yearly turnover rate for your subadvisors?

On average, we have a yearly 5% to 7% subadvisor turnover rate. We're still in a pretty volatile market with a lot of macro shocks. It's very difficult to evaluate managers on a short-term basis.

How big is your sales team?

We have built out growth on the retail distribution side. We now have more than a dozen external wholesalers and probably another 10 internal mutual fund distribution support team. More resources are being added to the distribution around digital and web arenas to deliver more content. We've also added more product management and support around our distribution as well.

Since 2009, we've grown assets at about 18% per year. We want to continue that growth but we want to do it in a way that takes care of customers and is prudent as well. Our sales team is probably skewed more towards wirehouses now and I think we want to grow our independent broker/dealer channel, which can include Registered Investment Advisors, more.

Aside from eliminating redemptions fees, what else has the firm done to make its funds more attractive?

A lot of our work is around making our products more price competitive. We've cut fees in our Nationwide Bond Fund by 20 basis points this year. Our Target Destination Funds we've also reduced by 20 basis points.

Why did the firm last week adopt the UBS High Yield Fund and UBS Global Equity Fund into the Nationwide High Yield Bond Fund and the Nationwide Global Equity Fund, respectively?

Rooney: Both of these categories of global equity and high yield we recognize as gaps in our lineup and we feel that these categories are poised for growth in the next three to five years so we wanted to meet that need within our lineup. We see adoptions as a way to bring products to market quicker than a traditional fund launch so we struck a deal with UBS and we think it is a beneficial deal for both organizations and the shareholders.

Are you looking to adopt more UBS funds or funds from other providers?

We have a strategy in place to look at adoption as a way to continue the growth strategy that we put in place earlier this year. We don't have other UBS funds that we are currently evaluating but we do think that adoption affords us an opportunity to further our growth strategy to bring products quicker to market. We have some opportunities that we're looking at right now but I can't go into specifics on them but we do think is an attractive way to build out the retail product line. I think we will continue to build out the product line in early 2013. It's a conversation that we have with many firms.

Are you looking mainly at U.S.-based funds or globally?

We do think that there are opportunities for more global products and so while we look at domestic opportunities, we're also looking globally. We're also continually looking at ways to improve the existing fund lineup so earlier this year we eliminated redemption fees on our retail funds. But we're not looking to hit a number of new products or managers. We're looking at product management and the needs of advisors and shareholders in the future.


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