Investors in bank-run mutual funds are increasingly going for equity funds rather than more conservative investments.
At the end of September, equity funds accounted for 33% of mutual fund assets at banks, up a full 6 percentage points from a year earlier. Over the same period, money market and bond funds became a smaller piece of the bank-fund pie.
The continuing shift toward stock funds mirrors that of the $4.4 trillion fund industry at large. Driven by the steady rise of the stock market, equity funds gobbled another 6 percentage points of the asset pie over the year, as money market and bond funds lost share.
"That proves that banks are of age, since their customers are behaving in lockstep with the rest of the industry," said Louis Harvey, president of Dalbar Inc., a Boston-based consulting company. "Banks used to have more conservative, skittish investors."
To be sure, banks remain better known for their money market funds than their stock funds. Most of banks' fund assets - 52% - were in money market funds, according to data compiled for American Banker by Lipper Analytical Services. By contrast, equity funds contained 51% of assets in the fund industry at large.
But though bank equity funds gained popularity, banks' more conservative funds lost share. The proportion of assets in bank money market funds was 4 percentage points lower than a year earlier. Likewise, the share of fixed-income funds was down nearly 2 percentage points, to 8% of assets, and municipal bond funds fell almost half a percentage point, to about 7%, according to Lipper.
Meanwhile the asset growth of proprietary bank mutual funds kept pace with that of the fund-industry at large for the year ended Sept. 30. Both rose by 24%, according to Lipper and the Investment Company Institute.
However, banks slightly lagged the industry in the third quarter. Their assets rose 18%; industrywide assets rose nearly 20%.
The trend toward equity fund investment is vividly illustrated at Banc One Corp. Equity funds account for 80% of assets, up from 20% three or four years ago, said David Kundert, president and chief executive officer of Banc One Investment Advisors Group, Columbus, Ohio.
The strong stock market, more sophisticated customers, and a more sophisticated sales force explain the turnabout, said Mr. Kundert.
Bill Hawkins, president of the Bank Securities Association, said that as bank funds have matured they have become seen as opportunities for serious investors, rather than just safe places to park money.
Banks today have a broader range of funds and asset classes and are amassing management talent, said Mr. Hawkins, who is also president of Griffin Financial Services, the broker-dealer arm of H.F. Ahmanson & Co., Irwindale, Calif.
"Clearly they've been bringing more talent into their systems to bring them more credibility and produce a better result overall," Mr. Hawkins said.
