Treasuries Work For A Tiny Texas Gem

Small is beautiful for mutual fund clients of Texas Commerce Bank's private banking and institutional trust departments. The Houston bank's tiny Avesta Trust U.S. Government Securities Fund, with just $2.5 million under management, had a towering 22% rate of return over the 12 months through Sept. 30.

The fund, offered exclusively to fiduciary customers who can invest at least $100,000, had the best results of 35 bank-run funds in the general U.S. government securities group, which had average returns of 12.3%. And it ranked 6th among all 158 funds in the category. The fund, one of 13 portfolios in the $325 million-asset Avesta Trust family, is distributed by Chemical Securities of Texas Inc. Henry Lartigue, who oversees the fund as chief investment officer of Texas Commerce's private bank, said it benefits from a stable asset pool and a consistent approach to investing. We have a philosophy here that all of our funds remain fully invested in their target markets, Mr. Lartigue said. If managers are allowed to get exceedingly bullish or bearish and move significantly away from their target market, that can allow for a big deviation in returns. Mike Harper, managing director of fixed-income funds at Texas Commerce, said Avesta's bond fund managers meet every week to go over key variables affecting the marketplace such as the economy, inflation, Fed policy, supply and demand for credit, and then try decide whether those variables are positive or negative over the next few months. Looking at those factors, especially the fact that inflation is essentially nonexistent, led us to believe the long end of the yield curve in the form of 30-year Treasury bonds would do very well, Mr. Harper said. Day to day, the U.S. government securities fund is steered by John Miller, a portfolio manager. Mr. Miller reports to Mr. Lartigue, who in turn reports to Mr. Harper. Texas Commerce Bank, a unit of Chemical Banking Corp., declined to make Mr. Miller available for comment. Avesta fund managers do have some elbow room to make bets on short-term trends, Mr. Lartigue noted. We allow our fixed-income managers to deviate somewhat away from their benchmark maturity in an attempt to add value, but we also ensure that the target maturity is reflected. In the case of the Avesta U.S. Government fund, that philosophy paid off handsomely. We were fully invested when interest rates were peaking last November, and on top of that we had some good (short-term) interest rate calls during the past year, Mr. Lartigue said.