As third-quarter mutual fund statements land in mailboxes around the country, investors are getting their first hard look at how market volatility has hit their accounts.
Bank mutual fund executives say they do not expect much "statement shock" even after the market's recent gyrations. Nevertheless, they acknowledge, the next few weeks will provide important clues to investor sentiment.
"People are opening statements," said Stephen E. Canter, a Mellon Bank Corp. vice chairman and chief investment officer for the $101 billion Dreyfus Corp. "That's where the rubber meets the road."
Mr. Canter and his peers said it will become clear in coming weeks whether they have adequately prepared investors for the reality check those statements will provide.
To be sure, the market has staged something of a comeback in recent weeks, but third-quarter statements will nevertheless present an eyeful for some investors. The average diversified U.S. stock fund posted a return of minus-15.02% in the third quarter, according to Lipper Analytical Services in Summit, N.J. It was the biggest decline since the third quarter of 1990, when the average stock fund returned minus-16.07%.
But so far, executives said, indications are that most investors will stay the course, having realized that stock prices could not keep climbing forever.
"If we've done a good job of preparing our clients, I don't foresee any change" in investor behavior, said Robert J. Stapleton, director of investment services for the $1.3 billion-asset Independence One Funds family at Michigan National Bank in Farmington Hills.
"We've seen a very calm attitude on the part of our shareholders," said Mr. Canter of Dreyfus. "Redemptions did pick up a little in August but were negligible in September."
First Union Corp. has seen little evidence of distress among investors in its $51 billion-asset Evergreen Funds, said Michael E. Treske, president of the Charlotte, N.C., company's Evergreen Investment Services unit. "We've been amazingly consistent in the amount of phone calls, with very few excited types of calls."
Indeed, customers could be in for a pleasant surprise if banks have done a good job of helping them diversify their holdings, said Kathleen A. Dennis, a senior managing director at Key Asset Management, a division of KeyCorp, Cleveland. Key Asset Management manages roughly $11.5 billion of assets in its Victory Funds.
"My suspicion is that they will find that their account holdings are not down as much as they thought," Ms. Dennis said.
Ms. Dennis conceded that there might be some "modest juggling" of assets by bank mutual fund investors, but no major asset reallocation.
However, some observers are skeptical. Bank customers do not monitor their accounts as closely as other market participants, said Joy Montgomery, head of Money Market Initiatives, a consulting firm in Basking Ridge, N.J.
So when these people see their quarterly statements, "some will panic," she predicted. "And the first thing they'll do is pick up the phone. Let's hope the banks have done a good job preparing investors."
Markets like this invite investor suitability claims, said Geoffrey H. Bobroff, a mutual fund analyst in East Greenwich, R.I.
In the past banks have shown a reluctance to fight these lawsuits because it creates bad publicity, said Mr. Bobroff. And that "puts them at the mercy of the vagaries of the market," he said.
