With managed accounts now growing faster than mutual funds, one of the nations largest fund companies is looking to sell its investment expertise by marketing model portfolios of its investment styles to other asset management and advisory firms.
AIM Private Asset Management, the Houston subsidiary of Amvescap of London, is marketing its model portfolios for separate accounts managed by bank trusts and brokerage firms private-client divisions. Only one other mutual fund company, Massachusetts Financial Services in Boston, is marketing its investment styles to asset managers. Investment styles are specific strategies used to create portfolios. The model portfolios are groups of securities, selected by professional managers, that reflect these styles.
Kamala Sachidanandan, vice president and director of marketing at AIM, said that since October it has signed distribution deals for its models with PaineWebber Inc., First Union Securities, Lockwood Financial, and U.S. Bancorp Piper Jaffray. The company is talking to other brokerages about distributing its investment styles, she said, and hopes to sign up six more brokerage programs by yearend.
We want to be a major player in private asset management, Ms. Sachidanandan said.
The model portfolios track eight investment styles: blue-chip, aggressive growth, international equity, basic value, demographic trends, mid-cap equity, balanced, and large-cap growth. The models hold 40 to 80 individual securities, she said, and investors can choose multiple investment styles for their portfolios and alter them to meet their needs. For example, a portfolio could remove sin stocks, such as those of alcohol or tobacco companies, she said.
AIM, which manages $10.2 million in separate accounts, is expecting strong growth in this division because the growth rate of separate accounts in the industry is outpacing growth in mutual funds. It structures its accounts with a minimum investment of $100,000, but the average account is closer to $300,000, Ms. Sachidanandan said. The company charges management fees of up to 3% a year.
A study by Cerulli Associates of Boston, issued last Wednesday, found that assets in all managed accounts, including separate accounts and other wrap programs, grew 23% last year. By comparison, the Standard & Poors 500 was down 10%, and the Nasdaq was down 40%, the study said.
And according to the Investment Company Institute, mutual fund assets grew about 2.2% last year, to $6.967 trillion a pace far slower than that of managed accounts.
Paul Fullerton, an analyst at Cerulli, said he expects more fund companies to try to market their investment styles through separate accounts as the managed account business grows.
Some high-net-worth advisers also say these products are surpassing mutual funds in near-term popularity among their clients.
Harold Evensky, president of Evensky PFO in Coral Gables, Fla., said wealthy clients will turn increasingly to separate accounts because they are less expensive than mutual funds. Separate accounts also let financial advisers select what to them is the most valuable part of a fund company its investment research and outsource activities such as accounting and trades, he said.
I just need your brains, Mr. Evensky said. I dont need you to manage the portfolio.
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