Pow! Did anyone get the license number of that truck? Even for the top performers, 1994 was a tough year in the bank trust-fund arena. But despite last year's difficult market, a few bank funds still managed to elicit some pretty decent returns, relatively speaking. Indeed, any north-bound return in the fixed-income category was an impressive feat itself.
The profound impact of last year's markedly altered investment landscape is all too evident when comparing 1993 and 1994 fund rankings prepared for U.S. Banker by Rockville, MD-based Thomson Investment Software. over the past six years, U.S. Banker has published this annual ranking of bank equity and fixed-income trust funds for both one-year and five-year returns using Thomson's data. (Thomson Investment Software is an affiliate company of U.S. Banker.)
Not surprisingly, returns dropped significantly from 1993 to 1994. Case in point: Rates of return for the top 10 fixed-income funds in 1993 ranged from 17.95% to 12.56%. But in 1994 the performance range varied from a high of 6.5% by Norwest Corp.'s Stable Return Fund to Wells Fargo & Co's. Taxable Short-Term Fund at 1.9%.
In the equities category, the top 10 funds in 1993 posted rates of return that ranged from 41.28% to 23.67%, while 1994's went from 8.6% by BankAmerica Corp.'s Equity Value (B) Fund down to Security Trust Co.'s EB Equity Fund at 4.4%.
Expectedly, five-year annualized rates of return from January 1990 through December 1994 were higher in comparison to 1994 figures alone. For example, in the five-year fixed-income category, the one-to-ten rankings ranged from 9.3% to 8.3%, with Boatmen's Trust Co.'s Variable Maturity Bond "F" and NationsBank Corp.'s Institutional Bond Fund copping number-one and number-ten kudos, respectively.
Equities fared considerably better. Specifically, in the five-year equities category, number-one performer PNC Bank Corp.'s Small Cap Growth Fund achieved a 22.6% rate of return, while number-ten Centura Banks' Carolinas Fund reaped 14.6% - both markedly higher than the 8.6%-to-4.4% scale for equity fund returns in 1994.
Fixed-Income Challenges
How did upper-echelon performers achieve their results in spite of last year's market negativity? For some, like Norwest's Stable Return Fund - rated as the top fund for its 1994 fixed-income category return of 6.5% - consistency has been the key. Karl Tourville, vice president and manager of taxable fixed-income funds for Norwest Investment Management, says the fund has been a top performer during the past three years in the universe of stable value funds, trucked by Hueller Analytics, a Minnesota-based consulting firm.
The fund, with nearly $1.4 billion in assets, provides safety of principal, adequate liquidity and returns superior to those of shorter-maturity investment alternatives, according to Tourville. It also emphasizes debt obligations of issuers who have achieved top financial ratings from national rating services and meet Norwest's internal credit quality standards. Initiated in 1985, the fund's objectives are two-fold: stability of capital and preservation of principal, combined with a relatively attractive yield over a full interest-rate cycle.
While fixed-income funds took it on the chin last year, Tourville is optimistic about the future. "Long-term, we're very positive regarding the bond market, based on our belief that the economy will slow, with inflation peaking," Tourville observes. "Moreover, we also believe progress will continue to be made on the budget deficit."
Another fund which performed well in last year's market is Hawaiian Trust Co.'s Defensive Fixed Income Fund. Scoring a close second m the 1994 fixed-incorne category with a 6.40/o return, the fund has $264 million in assets. According to William Barton, Hawaiian Trust's senior vice president and chief investment officer, the fund is primarily attractive as a 401(k) option ingredient.
Stability and consistency are key attributes of the fund, while it maintains a competitive return compared to other low-risk fixed-income alternatives, Barton adds. The fund does have some mainland clients, but its geographic base is focused primarily throughout the islands, he adds. Like Norwest's Tourville, Barton believes the economy is slowing and that inflation is stable - thus he is optimistic about the fund's 1995 performance.
Several funds which made US. Banker's 1994 bank trust fund survey also achieved recognition this year, according to Thomson. Last year's top ranked fixed-income fund for five-year annualized return from 1989-1993 - Boatmen's Variable Maturity Bond "F" - once again earned front-runner status in this category. While the fund's 1990-1994 rate of return of 9.3% was considerably below its 1989-1993 return of 14.66%, it still took the top spot.
While Boatmen's Variable Maturity Bond "F"'s 1993 15.81% return ranked it as third in the one-year fixed-income segment in USB's July 1994 study, the fund's 1994 standalone performance did not gamer top-ten honors in the 1995 one-year fixed-income category.
Diversified Portfolio
With about $188 million in assets, the fund invests in a diversified portfolio of high-grade bonds, notes, and other debt securities issued by the U.S. Treasury, U.S. government agencies, financial institutions and corporations. According to Landers Carnal, Boatmen's chief fixed-income investment officer, the maturity of individual securities selected for the fund is not limited, and the average maturity of the fund may be very long or very short at times. In terms of fund usage, Variable Maturity Bond "F" enjoys a national client base with both public-plan and corporate-plan sponsors, Carnal adds.
Equities Fared Better
While nagging market challenges chipped away at 19,94 fixed-income fund returns, equities emerged with a brighter profile. Garnering premier honors in the one-year equities category last year was BankAmerica's Equity Value (B) Fund, with an 8.6% return. Oriented for personal trust clients, the fund now has about $81 million in assets, according to Keith Wirtz, chief investment officer for global investment management.
The fund's investment objective is to seek capital appreciation while maintaining income at a level above the S&P 500 dividend yield, Wirtz states. Moreover, the hind is managed according to a "value" style, where value is defined as an underpriced stream of future earnings and dividends.
Thinking out loud, Wirtz says it's possible that Equity Value Fund (B) might merge into one of the company's Pacific Horizon proprietary mutual funds. Says Wirtz, "It's something that I would like to see over time, as I believe it's one of those funds that would do well in a retail environment."
Though 1995's top 10 equity funds in the five-year annualized return category for 1990-1994 performance were nowhere near the levels reported in last year's 1989-1993 ranking, they still posted double-digit returns. The top two performers - PNC's Small Cap Growth Fund and Meridian Trust Co.'s EB Special Equity Fund - garnered 22.6% and 17.6% returns, respectively. Their performance bumped them up a notch from the funds' respective third-and-fourth place rankings for five-year growth in 1989-1993, according to Thomson.
With about $302 million in assets at press time, PNC's Small Cap Growth Fund is used for individual trust accounts and charitable accounts. Part of the fund's strategy is to focus on small companies with a market capitalization under $1 billion, according to Bill Wykle, managing director in charge of small capitalization growth equities for PNC Equity Advisors. From that list, PNC develops a universe of companies with the highest growth rates, and also evaluates market dynamics of the company in terms of investor perceptions. Says Wykle, "We want to invest in the best and most rapidly growing companies whose EPS growth is going to get better."
Interestingly, another fund which has earned distinction in recent years for its performance is Meridian Trust Co.'s EB Special Equity Fund. A second-place finisher this year in the five-year performance category, it recently was merged into one of Meridian's existing proprietary funds - the Conestoga Special Equity Fund - notes Joseph E. Stocke, senior investment manager with Meridian Investment Co.
Last year's agitated market for both stocks and bonds represented a formidable challenge for both bank equity and fixed-income trust funds. While 1994's gains paled in comparison to 1993's, many bank trust funds proved they had the muscle to withstand the difficult conditions - and ultimately prevail.
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