Bank-run mutual funds have long been dogged by the perception that they cannot match the performance of their nonbank rivals.
But an analysis shows that on average, the returns of the 2,185 bank-run funds are actually running neck-and-neck with the 7,581 offered by nonbanks.
What's more, in two key categories-growth and income and domestic growth-the average performance of bank-run funds has topped that of nonbank funds over the last three-year and five-year periods, according to the research firm CDA Weisenberger, a sister company of American Banker.
Bank mutual fund executives felt vindicated by the findings.
"There has been an underappreciation of the quality of bank investment management for many, many years," said Jan Koenig, chief investment officer of Compass Bank Asset Management Group.
That perception grows out of the idea that bank funds are run more conservatively because bank customers are more conservative, and that banks cannot afford or do not want to pay for top portfolio managers.
But Mr. Koenig argues that while bank customers may allocate more of their money into conservative funds, the management of those funds is no less aggressive with regard to the funds' objectives.
As for banks' ability to attract talent, the proof is in the pudding, he said. When it comes to attracting talent, the most attention is paid to stock pickers, particularly for large-cap domestic funds, where the majority of equity assets are held, he said.
In the domestic-growth category, banks have the edge over the past three and five years, the CDA data shows. Bank funds returned 23.5% and 23% over the last three and five years, respectively, compared with 21% and 22% for nonbank funds.
Another strong area for banks is growth and income funds, which have returned 22.1% and 22.8% over the past three and five years respectively, compared with 21% for their rivals.
One caveat: The nonbank-fund averages include funds run by insurance companies, which, like banks, carry the conservative label.
Bank funds' underperformance "is a misconception, mostly propagated by those with a vested interest," said Richard Weiss, chief investment officer at Sanwa Investment Services, Los Angeles.
Mr. Weiss said that compensation differences are not the issue they once were because many banks have spun off their investment units in part so that they could set up different pay systems.
And he calls the perception that banks have a more conservative investment style "naive."
"In the investment management business, you can't survive by being what I call recklessly conservative," he said.
But banks remain at a disadvantage in attracting and keeping top stock- pickers because they cannot offer ownership of the company, unlike small and midsize mutual fund companies, said Geoffrey Bobroff, a mutual fund consultant in East Greenwich, R.I.
As proof, Mr. Bobroff pointed to the number of "five-star" funds advised by banks. While 10% of nonbank-run funds currently won five-star ratings from Morningstar Inc., the Chicago-based fund rating agency, only 8% of bank-run funds do.
But "I'm still a believer that banks have a difficult time attracting and retaining key talent," he said.
