Balanced-Fund Scale Tips in Banks' Favor

Balanced mutual funds managed by banks are outperforming those run by nonbank competitors - attracting interest and assets in the process.

Through the end of April, the average bank-managed balanced fund had delivered a return of 3.24% this year, besting the 2.80% earned by the average nonbank balanced fund, according to data from CDA/Wiesenberger, a Rockville, Md.-based fund research firm.

And bank balanced funds narrowly beat the 3.19% return of a comparative index calculated by blending 60% of the S&P 500 and 40% of the Lehman Brothers Aggregate Bond Index, CDA/Wiesenberger said.

For the three years through April 30, nonbanks had a slight edge over banks in average return - 10.87% to 10.85% on an annualized basis.

Designed to lessen investment risk by combining stocks and bonds in a single portfolio, balanced funds rarely sport standout performance, except in down markets.

But with investors fretting that the stock market is showing signs of reaching a top, balanced funds are capturing more interest - and assets, several bankers said.

Balanced funds, they said, appeal to retail customers seeking relative safety while still keeping a toe in equity waters. And 401(k) plan participants frequently use balanced funds as a set-it-and-forget-it choice for their dollars.

Firstar Corp.'s Portico Balanced Institutional fund topped the bank balanced fund performance list through the end of April, with a 6.17% return. It also led the pack for the year ended April 30, with a 24% total return.

Despite a low-key marketing effort, asset flow into the fund has been steady, Firstar executives said. At the end of March, assets stood at $123.7 million, up from $85.7 million the year before.

"We don't advertise significantly - unlike many of our peers," said R. Bart Wear, co-manager of the Firstar balanced fund. "We prefer to let our performance do the talking."

Firstar pitches the fund to companies for their 401(k) plans, placing special emphasis on winning over pension consultants who advise smaller companies on their defined contribution plans.

And among the plans that offer Firstar's balanced fund, employees have stuck by it through up and down markets, Mr. Wear said.

"We were pretty early in getting people exposure to balanced funds, so they're not (buying it) in a reaction phase to the market doing well," Mr. Wear said.

Another standout fund for the year ended April 30 is Washington Mutual Inc.'s Composite Bond and Stock Fund, which placed second among all bank- managed funds with a 23.10% total return.

"It's kind of a grandmother's fund," due to its conservative portfolio approach, said William Papesh, president of Composite Research and Management, the Seattle-based thrift's mutual fund unit.

And that presents selling challenges, Mr. Papesh said. "The performance numbers themselves will never appeal to those people who are in the race to buy the hottest fund," Mr. Papesh said.

Therefore, persuading a customer to buy a balanced fund rather than the latest high-flying stock fund takes discipline, Mr. Papesh said.

"That's where our counseling can earn its way and where our investment reps can earn their compensation," he said.

So far this year, Washington Mutual, whose fund sales are entirely retail, has been getting the message out. More than $12 million has flowed into the $236 million-asset fund, reversing a net outflow of $10 million last year, Mr. Papesh said.

Another balanced fund winner in both assets and performance is Fifth Third Bancorp, Cincinnati.

"I think people like the instant asset allocation that a balanced fund can provide," said Michael J. Cassani, product manager for the Fifth Third Funds.

So far this year, net assets flowing into the bank's Fountain Square Balanced Fund have boosted total assets by 21% to $85.5 million, as of March 31. That's the fastest growth of any of Fifth Third's 10 proprietary funds during the period, Mr. Cassani said.

And for the month of April, Fifth Third's fund rewarded investors with a 1.51% return, making it the third-best fund for that period behind Firstar's and Norwest's balanced funds.

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