Bank Mutual Fund Results Mirror Fund World
Stoneman, Bill, American Banker
The investment record at mutual funds owned and advised by banks once again closely matched the performance of the larger fund world last year across a spectrum of equity investment categories.
The average return in bank-owned, large-cap growth funds was generally within a percentage point of that of large-cap growth funds owned by stand-alone or other nonbank companies, according to data compiled by Lipper Inc., a New York company that tracks and analyzes information on the mutual fund industry.
The gap varied slightly, but the bottom line was essentially the same in mid-cap and small-cap funds as well as in those calling themselves growth, value, or balanced funds.
"Banks have gotten more serious about the investment business," said Michael Kenneally, the president and chief investment officer at Banc of America Capital Management Inc., a unit of Bank of America Corp.
Though widely perceived as the laggards of mutual fund asset management, bank-owned funds' investment performance has roughly equaled those of general funds for several years.
Bank executives say that is a result of parent companies' freeing their fund groups to compete directly with nonbanks -- both by paying high salaries for top talent and by opening more aggressive funds than bank complexes have offered historically.
"You've got to be able to attract and keep the best and brightest," said Keith Banks, the chief executive officer of Fleet Asset Management and the CIO of its parent, FleetBoston Financial Corp. "We are not a bank managing money. We are an autonomous asset management company."
In fact, it plans to drop the Fleet from its name early this year, though it has not yet selected a new one.
But while banks' funds performed about as well as nonbanks' funds, is that much to boast about in a year of dismal mutual fund performance across the board?
Bank-advised large-cap growth funds were down an average 22.6% for banks in 2001, according to Lipper. For nonbanks the drop averaged 23%.
Moreover, market share and sales performance figures tell a more disappointing tale than investment performance data do for the banking industry, where top executives have been saying for several years that investment management is an important part of their future.
Though long-term assets under management in bank-owned proprietary funds grew to $217 billion in the second quarter of 2001 from $125 billion at the end of 1996, bank funds' market share was virtually unchanged in that period, according to Cerulli Associates Inc., a Boston consulting firm.
Proprietary bank funds held 5.1% of all long-term fund assets in the second quarter of last year, against 5.3% in 1996, Cerulli found. The bank-owned market share rises to 9% when calculations include acquired fund families, such as Mellon Financial Corp.'s Dreyfus Corp., PNC Financial Services Group's BlackRock Inc., and Liberty Financial Cos. Inc., which FleetBoston picked up in November.
But other figures paint a grimmer picture. For example, bank proprietary funds captured just 2.1% of net inflows of money to long-term funds in 2000, down from 10.5% in 1996, according to Cerulli.
Put differently, bank-owned stock and bond funds had a net inflow of $3.6 billion in the first nine months of 2001, according to Boston-based Financial Research Corp. This was well below the $49.6 billion net inflow to funds selling directly to the investing public without brokers; $35.6 billion to funds sold through third-party channels; and $17.2 billion to funds geared to institutional investors. Vanguard Group topped all fund families with a net inflow of $30.4 billion in the first nine months, but the top-ranked bank fund family was Bank One Corp.'s One Group Mutual Funds, in 22d place overall, with $1.6 billion, according to Financial Research.
Meanwhile, bank-owned large-cap growth funds had an annual average loss of 4% over the three years that ended Dec. …