For the first time in at least nine years, banks have fallen behind the pack in mutual fund asset growth, according to data prepared for American Banker by Lipper Analytical Services, Summit, N.J.
Roaring markets propelled bank-managed mutual fund assets to $391 billion, a 27% gain. But banks lagged the broader industry, which closed the year with $2.82 trillion of assets, up 31%.
Lipper said banks had outpaced rivals in mutual fund asset growth every year since 1986, when the fund tracking firm began isolating data on banks. Banks made their biggest strides in 1990, when their fund assets increased 43%, versus 3% for the industry as a whole.
A slowdown in both trust conversions and fund acquisitions by banks undoubtedly played a role in the banking industry's failure to keep up with the fund industry's growth. But observers also pointed to other factors: a lack of sales savvy and relatively narrow product selection at bank brokerages.
"Banks just haven't marketed or developed their funds aggressively enough - that's the bottom line," said R. Gregory Knopf, managing director of Los Angeles-based Union Bank's Stepstone Funds.
Added Penny Zega, president of Seafirst Securities, Seattle: "People are saying that they need more of a variety of offerings, but to my knowledge not many bank proprietary funds can match a Fidelity or Putnam for breadth of choice."
In a round of interviews, bankers said they have been slow to respond to customers' growing appetite for more aggressive offerings, particularly the stock funds that fueled much of last year's fund industry growth.
"All the action was in equity funds last year, and banks were late to the game," said William Papesh, president of Composite Research & Management Co., the mutual fund arm of Washington Mutual Bank.
Still, banks didn't fare too badly in a year of torrid mutual fund growth. The Lipper data show that bank-managed stock funds grew 46% last year, just a notch below the 47% growth rate for the industry as a group.
The problem, bankers point out, is that banks have less of a focus on stock funds to begin with. These portfolios make up just 24% of their total fund assets, versus 45% for the fund industry as a whole. Meanwhile, banks have 57% of their mutual fund assets in money market funds; the industry average is 27%.
It certainly wasn't performance that kept investors away from bank- managed stock funds: these funds actually produced slightly higher returns in 1995 than their nonbank counterparts, according to data from CDA/Wiesenberger, Rockville, Md. (See tables starting on page 8A and article on page 9A)
Rather, observers said, having a sharply focused sales strategy and multiple distribution channels seemed to be a decisive factor in boosting assets.
Among the top 10 banks in mutual fund assets, the strongest gains were posted by ninth-ranked First Union Corp., which boosted its assets 60%, to $10.4 billion.
The Charlotte, N.C., banking company is known as one of the most ambitious banks in the funds business. Two years ago, First Union beefed up its stock fund business with the purchase of the Evergreen Funds.
More recently, First Union has begun courting nonbank brokerage firms and financial planners to sell the funds. And its chairman, Edward E. Crutchfield, has set a corporate goal of boosting fund assets to $100 billion within five years.
Sixth-ranked BankAmerica Corp. made the next-best showing, with fund assets climbing 54%, to $11.3 billion, largely on the strength of renewed investor interest in its money market mutual funds.
The weakest advance among the big 10 was recorded by second-ranked PNC Bank Corp., which eked out a 9% gain in fund assets to close the year at $24.9 billion. The weakness was in money market assets, which rose just 6%. Stock fund assets were up 31%, to $3.1 billion.
Just beyond the top tier, 11th-place Chase Manhattan Corp. also turned in a strong year, boosting assets of its proprietary Vista Funds 45%, to $9.4 billion.
Based on the Dec. 31 data, Chase can expect its mutual fund assets to swell to $16.4 billion after its planned merger with Chemical Bank Corp. sometime before March 31 - a move that would propel Chase into the top 5 fund managers. But a senior executive said the company is setting a more ambitious goal.
"We anticipate building our assets to $22.5 billion by the end of 1996," said Steven R. Samson, director of product management for Chase's Vista Capital Management unit.
He added that the company had doubled its outside sales specialists to 16 full-time representatives. Chase is also working with its distributor, Bisys Corp., to boost sales of the Vista Funds through independent investment advisers, "a rapidly growing channel that a lot of banks and traditional load fund companies are carving out a niche with," Mr. Samson said.
Products such as 401(k) retirement plans and sweep accounts, which seek a higher yield by moving a customer's balances into money market funds overnight, have also become integral to banks' mutual fund growth strategies.
"Our core product now is our 401(k) plan," said Union Bank's Mr. Knopf. "Last year it brought in about 30% of all of our fund sales, and another 30% came through our money market sweep accounts."
Union Bank saw its Stepstone Funds grow 33% in 1995 to rank 40th among banks, mostly on the strength of its stock and bond fund offerings. The bank has also been marketing its proprietary funds in newspaper advertising and appearances on financial television programs, Mr. Knopf said.
Kenneth R. Hoffman, president of the Optima Group, a Fairfield, Conn.- based consulting firm, said other banks would do well to emulate Union Bank's marketing approach.
"The person buying aggressively marketed equity funds is not a heavy user of the bank branch system," Mr. Hoffman said.
Katharine Fraser contributed to this report.
