Five bank-managed equity funds have stood the test of time, with five- year returns that far exceed the performance of all equity funds.

These funds-run by Bank One Corp., First American Corp. of Nashville, Mellon Bank Corp., Bankers Trust Corp., and KeyCorp-also outperformed the Standard & Poor's 500 and other indicators, according to data compiled by CDA/Weisenberger for American Banker. All five placed in the top quartile last year and have more than $100 million of assets under management.

"At the end of the day, it's always the return that people are going to be most interested in," said Gary S. MacDonald, vice president of marketing and new business development at Funds Distributor Inc. of Boston.

Banks' entry into the proprietary mutual fund business began as a trickle in the mid-1980s before turning into a flood several years later. But the fund industry - which tracks performance in terms of one, three, five, and 10-year returns - favors longevity, and banks with stellar long- term records have an easier time selling their funds, observers said.

"Performance sells, and the longer there's performance, the better it is," said Arnold Wechsler, chief executive of Wechsler Ross & Partners Inc. of New York, which provides marketing services to fund companies.

"We want to see funds that are consistently beating their peers," added Jon Kuhn, a certified financial planner at Allegheny Financial Group of Pittsburgh.

Five-year returns on bank-run equity mutual funds outperformed those of nonbank-run funds by 138 basis points, according to CDA/Weisenberger. The bank funds returned an average 17.11% over the past five years. By comparison, nonbank-run funds returned just 15.73%.

But bank-run equity funds had done only slightly better than nonbanks' during the five years ending in 1997. On average, they returned 16.87%, while nonbank equity funds returned 16.78%.

Banks' strong performance suggests they are attracting better portfolio managers, said W. Christopher Maxwell, a consultant in Rockhall, Md.

In addition, some bank funds have profited because the market "favors an investment style that's more in tune with the customer mix that banks have," he said.

Nonetheless, bank-run funds on average still have a long way to go to beat the S&P 500, which returned 24.06% over the past five years.

Partly because of the "staggering" amount of money flowing into the S&P 500, "it's been very hard for actively managed portfolios to beat the index," said Geoffrey H. Bobroff, a mutual fund consultant in East Greenwich, R.I.

Some portfolio managers said their stellar performance has been fueled largely by investors' hunger for large-capitalization stocks.

"We had the wind at our backs," said William Ruple, a managing director of Cleveland-based KeyCorp's asset management arm. The $80 billion-asset bank's Victory Growth Fund returned 24.11% over the last five years.

Buying more speculative stocks would have "killed" investors in the first 10 months of 1998, said Mr. Ruple of Key Asset Management.

Meanwhile, banks have been trying to buck the perception that they are too conservative to manage money properly-and investors seem to be getting the message.

"It's clear that the old perception about banks and their ability to manage money is a myth," said Joy P. Montgomery, president of Money Marketing Initiative, a mutual fund consulting firm in Basking Ridge, N.J.

And some banks have hired money managers from the fund industry and are paying more competitively.

"To compete we've got to attract high-level talent," said Ashi Parikh, who heads the team that manages the One Group Large Company Growth Fund for $261.5 billion Bank One Corp.

The fund returned 24.76% over the past five years.

"In the last five years, I think banks have come a long way," Mr. Parikh said. "The question is how much can we continue to progress, and that will be apparent in the next five years."

Because performance is so heavily tied to the market, the ability of some bank funds to keep pace with the industry will vary, observers said.

"Growth stocks do very well at a time when interest rates are declining," said Ronald E. Lindquist, who manages the ISG Large Cap Equity Fund for $20.7 billion-asset First American.

The fund returned 24.72% over the past five years. Mr. Lindquist said he picks high-quality companies that have strong statistics over at least five years "irrespective of who happens to be at the helm of the companies."

But if interest rates begin to go up, "we are likely to suffer-maybe even more so than the value managers," Mr. Lindquist said.

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