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Wells Fargo International Equity Fund

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Wells Fargo International Equity Fund QUARTERLY MUTUAL FUND COMMENTARY Q4 2020 | All information is as of 12/31/2020 unless otherwise indicated. Wells Fargo International Equity Fund Quarterly review GENERAL FUND INFORMATION ● The International Equity Fund underperformed the MSCI ACWI ex USA Index (Net) Ticker: WFENX and the MSCI ACWI ex USA Value Index (Net) for the quarter that ended December 31, 2020. Portfolio managers: Dale A. Winner, ● Performance was driven largely by stock selection, with positive contributions coming CFA®; and Venk Lal from investments in the industrials and materials sectors as well as in China/Hong Subadvisor: Wells Capital Kong and Canada. Management Inc. ● Positions in information technology (IT) and health care as well as in France and Japan Category: Foreign large value detracted from performance. Market review FUND STRATEGY ● Maintains a core equity style that International equity markets initially declined in October before advancing 19.6% in the emphasizes bottom-up stock final two months of the year as multiple COVID-19 vaccines reached 90%+ efficacy and selection based on rigorous, uncertainty surrounding the U.S. presidential election receded, resulting in a 17.0% in-depth, fundamental company return for the MSCI All Country World ex USA Index (Net) in the fourth quarter, the research highest quarterly return since the third quarter of 2009. In this environment, the Global ● Uses a bottom-up research process Purchasing Managers’ Index (PMI) reached 53.3 in October, the highest level since that targets companies with August 2018, but fell back to 52.7 in December, still in expansionary territory. Emerging underestimated earnings growth markets outperformed developed markets and sovereign yields saw mixed fluctuations potential or those trading at during the period, including the U.S. 10-year Treasury rate, which broke out of the 60- discounts to the team’s estimate of to 80-basis-points (bps; 100 bps equal 1.00%) range it had been trading in from April normalized profitability through October, ending the quarter at 91 bps; the euro 10-year yield, which fell 4 bps to -56 bps; and the Japanese 10-year, which was essentially flat at 2 bps. Foreign ● Constructs the portfolio using both currencies generally outperformed the U.S. dollar as the U.S. dollar index fell for a third qualitative and quantitative risk consecutive quarter, declining 4.2%. Overall, traditional value sectors outperformed measurements, seeking to maximize growth for the first time since the fourth quarter of 2018, illustrated by the MSCI ACWI the portfolio’s expected return ex USA Value Index (Net), which returned 20.4% versus 13.9% for the growth index. against probable risks ● Applies a dynamic investment Average annual total returns (%) as of 12/31/2020* approach within a disciplined process Year Since fund that provides broad exposure to 3 to 1 3 5 10 inception international markets by employing month date year year year year (9/06/79) an all-cap research process; the International Equity Fund-Inst 16.61 4.75 4.75 0.13 5.46 4.22 7.42 strategy is focused primarily on MSCI ACWI ex USA Value Index (Net) 20.42 -0.77 -0.77 -0.41 5.71 2.78 larger-cap companies and MSCI ACWI ex USA Index (Net) 17.01 10.65 10.65 4.88 8.93 4.92 secondarily on smaller-cap and *Returns for periods less than one year are not annualized. emerging market stocks Figures quoted represent past performance, which is no guarantee of future results, and do not reflect taxes a shareholder may pay on an investment in a fund. Investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance data quoted and assumes the reinvestment of dividends and capital gains. Current month-end performance is available at the fund’s website, wfam.com. Institutional Class shares are sold without a front-end sales charge or contingent deferred sales charge. The fund’s gross expense ratio is 1.12%. The fund’s net expense ratio is 0.85%. The manager has contractually committed, through February 28, 2022, to waive fees and/or reimburse expenses to the extent necessary to cap the fund’s total annual fund operating expenses after fee waivers at 0.84% for the Institutional Class. Brokerage commissions, stamp duty fees, interest, taxes, acquired fund fees and expenses (if any), and extraordinary expenses are excluded from the expense cap. Prior to or after the commitment expiration date, the cap may be increased or the commitment to maintain the cap may be terminated only with the approval of the Board of Trustees. Without this cap, the fund’s returns would have been lower. The expense ratio paid by an investor is the net expense ratio (the total annual fund operating expenses after fee waivers) as stated in the prospectus. CM303 01-21 (See pages 8-9 for important information.) QUARTERLY MUTUAL FUND COMMENTARY Q4 2020 | All information is as of 12/31/2020 unless otherwise indicated. Wells Fargo International Equity Fund Portfolio positioning International Equity Fund versus MSCI ACWI Index ex USA (Net) Value added from Value added from Total value added (%) Quarterly sector attribution and sector weight (%) stock selection (%) analysis 1.0 ● This quarter’s performances were driven largely by stock selection. In particular, 0.0 investments in the industrials, materials, and consumer discretionary sectors were the largest contributors. Weakness in IT, -1.0 health care, and communication services offset quarterly gains. -2.0 ● The consumer discretionary sector Cash & underperformed the index during the Energy staples Utilities Materials Financials Consumer Consumer Industrials quarter, resulting in negative allocation technology Real estate Health care equivalents Information discretionary effects from an overweight position. Comm. services However, stock selection was positive. Samsonite International S.A., the world’s largest designer, manufacturer, and distributor of suitcases, garment bags, and casual bags, with approximately 18% global luggage market share, was the Comm. services Consumer discretionary Consumer staples Energy Financials Health care Industrials Information technology Materials Real estate Utilities Cash & equivalents largest contributor in the sector as it Sector weights (average % weight during the quarter) reported third-quarter results revealing sequential improvement in net sales International 4.82 15.98 3.72 1.29 19.41 12.64 15.84 14.48 8.78 0.00 0.00 3.03 Equity Fund (-58% year over year in October versus -80.9% in April) and posted positive MSCI ACWI ex USA 7.37 13.96 9.28 4.24 17.71 9.88 11.69 11.93 7.90 2.68 3.35 0.00 earnings before interest, taxes, Index (Net) depreciation, and amortization (EBITDA) results in the Asia region due to Over/underweight -2.55 2.02 -5.56 -2.95 1.70 2.76 4.15 2.55 0.88 -2.68 -3.35 3.03 aggressive cost cuts, including a 40% year-over-year decrease in fixed SG&A in Sector returns (%) the third quarter. Fund sector return 7.92 19.91 6.48 54.13 24.11 4.41 22.52 16.19 29.14 0.00 0.00 0.71 ● Health care also underperformed in the fourth quarter, resulting in negative Index sector return 13.69 15.90 8.48 22.48 24.67 6.21 16.22 24.69 19.95 12.63 14.41 0.00 allocation effects from an average Relative return -5.77 4.01 -2.00 31.65 -0.56 -1.80 6.30 -8.50 9.19 -12.63 -14.41 0.71 overweight. Stock selection was also negative, including a position in Sanofi Sources: FactSet and Wells Fargo Asset Management S.A., a global health care company based Past performance is no guarantee of future results. Sector weights are subject to change and may have changed since the date specified. in France, which reported €9.5 billion in sales during the third quarter, up 5.7% in constant currency terms, but was held back by negative foreign exchange translation effects resulting in a consensus miss. Margins and earnings per share (EPS) came in above consensus with SG&A down 0.8% with management continuing to target €2 billion of secular savings by fiscal-year 2022 versus cyclical savings resulting from the COVID-19 environment. When reviewing the performance attribution of our portfolio, it is vital to remember that we construct our portfolio from the bottom up, one stock at a time. Each stock is included in the portfolio based on its own investment thesis. To help manage risk, we are aware of our sector and security weights, but we do not include a holding to obtain a sector distribution to resemble an index. Our exposure to any given sector is a result of our security selection process. 2 QUARTERLY MUTUAL FUND COMMENTARY Q4 2020 | All information is as of 12/31/2020 unless otherwise indicated. Wells Fargo International Equity Fund Portfolio positioning International Equity Fund versus MSCI ACWI Index ex USA (Net) Value added from Value added from Total value added (%) Trailing 12-month sector sector weight (%) stock selection (%) attribution analysis 2.0 ● Over the past 12 months, investments in 1.0 the financials, consumer discretionary, 0.0 and materials sectors drove positive -1.0 attribution but were offset by positioning -2.0 in IT, communication services, and -3.0 consumer staples. -4.0 ● Within the consumer discretionary -5.0 -6.0 sector, Midea Group Co., Ltd., a Chinese Cash & producer of home appliances, announced Energy staples Utilities Materials Financials Consumer Consumer Industrials better-than-expected third-quarter technology Real estate Health care equivalents Information discretionary results, confirming strong absolute and Comm.
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