Bank Mutual Funds Pass Test Of Performance Over Five Years

In recent months, bank-managed mutual funds have defied skeptics by turning in quarterly performance numbers that compare favorably with those of the much larger nonbank fund community.

But what about five-year performance - that all-important yardstick for measuring a fund's stability in good and bad times? Surely banks, as relative newcomers to the mutual fund party, aren't competing nearly as effectively on this longer time horizon.

Guess again.

Led by bank mutual fund powerhouses such as Chase Manhattan Corp., BankAmerica Corp., Wells Fargo & Co., and U.S. Trust Corp., the banking group turned in five-year returns that held their own against their more numerous nonbank competitors, according to data compiled by Lipper Analytical Services, Summit, N.J.

For the best of the bank funds, stellar five-year returns have gained the attention of the popular press and allowed many of these funds to make strong inroads through nonbank brokers and financial planners.

"Unlike quarterly performance, strong five-year numbers connote that you have a commitment to the fund business and that your performance isn't a flash in the pan," said Peter Capaccio, the director of U.S. Trust's mutual fund marketing program.

An annualized five-year return of 18.52% has helped Chase Manhattan's Vista Capital Growth Fund attract more nonbank than bank customers. The fund has regularly ranked among the top 5% of stock funds, and has amassed $706 million in assets.

And if you're looking for a tax-exempt bond fund, it's hard to top U.S. Trust's Master Long-Term Tax-Exempt Income Fund. The fund delivered a 9.71% annualized five-year return, making it the second-best-performing municipal bond fund in the nation over the past five years, according to Lipper data.

The 77 bank-managed stock funds with histories of five years or longer generated an annualized return of 10.95%, only slightly below the 11.11% delivered by the nonbank funds.

Among the group consisting of mixed funds - portfolios consisting of stocks and bonds that are altered to suit the economic outlook - the 11 bank-managed funds with five-year histories delivered annualized returns of 10.93%, beating out the nonbank funds' 10.33%.

In the municipal bond fund category, the nonbank funds edged out the bank funds only by a whisker, 7.56% to 7.49%.

Banks fare less well in taxable bond fund performance, an ironic development given that banks have by and large built their long-term fund business on the sale of fixed-income shares.

In the taxable-bond category, 62 bank funds with five-year histories delivered an average annual return of 8.27%, compared with 9.08% for the nonbanks.

But fund analysts attribute this nonbank edge to their greater exposure - through bonds with longer maturities - to the falling interest rates that characterized the early 1990s.

The five-year return averages suggest that banks had made a significant effort in recent years to hire the portfolio management talent necessary to deliver respectable returns on average, said Michael Lipper, president of Lipper Analytical Services. "The old view that banks aren't qualified money mangers should be put to rest," he said.

Lipper argued, however, that the "jury's still out" on whether banks can manage funds "competitively." That's because bank fund managers generally don't take the kind of risks necessary to deliver returns that match or top the best-performing nonbank funds.

Indeed, the two best-performing stock and bond funds with five-year histories - Chase's Vista Capital Growth and First Interstate's Westcore Long-Term Bond - were ranked 45th and 71st respectively among all funds in those categories.

Still, in one investment category - municipal bond - the top-performing bank-managed funds were among the pantheon of the best muni funds over the past five years. In addition to U.S. Trust's long-term fund, Chase Manhattan's Vista Tax Free Income A and First National Bank of Chicago's Prairie Muni Bond A finished in the top five among all munis.

Comparisons against the best of the nonbank portfolios haven't stopped Chase's Vista Family of Funds from amassing $9 billion with the help of strong performances from funds like Capital Growth and Growth and Income.

These two funds, the first and fifth best-performing bank stock funds over the past five years, have more than $2.2 billion in assets combined and are a hit with nonbank brokers and financial planners, said Steven Samson, director of product marketing and management for Vista Capital Management.

At the same time, Chase has built a formidable network of wholesalers through its Vista Broker-Dealer Services division to keep these funds on the forefront of brokers' minds. Mr. Samson said that 85% of Vista's long- term fund sales are generated through nonbank brokers and financial planners.

"Strong performance gave us the ability to gain shelf space, but without the wholesalers we wouldn't have the success we have," Mr. Samson said.

Keith Wirtz, the chief investment officer of BankAmerica's global investment management division, said that five-year performance results are a major component of the "story" that bank brokers pitch to prospective investors.

"Near-term success seems to attract a lot of attention at the retail level," said Wirtz.

"But we are encouraging our brokerage group at BankAmerica to focus on longer-term results as the first priority," he said.

Mr. Wirtz said portfolio managers in his division are paid in part on three- and five-year performance.

"The five-year results are a more important story than the one year results," he said.

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