In the name of diversity, banks are rushing to add international mutual funds to their equity buffet tables.

And while international funds are not exactly the most coveted of menu items, bankers say the funds would take off if overseas markets become hot and U.S. stocks slow down.

Those banks already in the international business believe they are best positioned to take advantage of such events.

It hasn't gone unnoticed in the banking community that foreign stock markets account for two-thirds of the trading volume in the world.

"There's a tremendous interest on all investors' part in diversifying globally. Banks are just trying to get in front of that," said George Mullen, senior vice president of marketing for Fiduciary Trust Co. in New York.

Assets of $114 Million

Fiduciary manages two FT Series funds, International Equity Class A and C for the Federated fund group in Pittsburgh. The funds have $114 million in assets combined.

Of the 43 bank-related international equity funds tracked by Lipper Analytical Services Inc., 32 have been introduced since 1990. Recent offerings by LaSalle National Trust, which wheeled out four international Rembrandt funds this year, and the Boston Co.'s Institutional fund are but a few examples of the trend.

Total assets in these funds are relatively small -- $2.5 billion. And not all of these funds are managed or sold by banks. Seven of the names on the Lipper list have tangential relationships to banks.

For example, Lipper lists any fund associated with a bank in any way, such as the $943 million Vanguard World: International Growth fund. Vanguard is a no-load fund group that doesn't sell through banks, but the fund's advisor, Shroder Capital Management International Inc., is a bank.

|A Nice Balance'

Bankers aren't claiming that offering international funds will be big business.

"We're not suggesting people go crazy. It just adds a nice balance to a person's portfolio," said LaSalle's senior vice president of marketing, Paul Kampner.

"To ignore international markets is to ignore a large portion of the world's capital and I don't think investors can afford to do that. Our view is a world view and a properly structured portfolio should have international exposure," Mr. Kampner added.

Most of the bank-owned or managed funds grew out of foreign operations of large banks. To wit: LaSalle is owned by ABN Ambro, the $242 billion Dutch bank with 1,800 offices worldwide. The 16 Rembrandt funds debuted this year with $1 billion from ABN's trust operations. Because the bank has been managing assets worldwide for 125 years, Mr. Kampner said it was simple to "clone" an existing fund-management system.

Mr. Kampner said "most banks will admit" they don't have the ability to manage foreign stock funds, and therefore must hire someone else.

Getting Started

Banks without worldwide presences may find it hard to convince trust customers to invest in a new international fund. Getting started and establishing a track record are the biggest obstacles.

The challenge for smaller banks, Mr. Kampner said, "is to get money to fund it. Typically, they get it from their own pension fund."

And, he added, investing in international funds is novel idea for many investors. "People don't understand the foreign markets and it's never going to be a big seller. The investor is not going to walk into a bank and say |I'm going to invest internationally.' Excuse the pun, but it's foreign to them."

NationsBank manages its $104 million International Equity fund through its London subsidiary, Panmure Investment Management Ltd., which oversees $1 billion in assets. In 1991, NationsBank took apart an international common trust fund, combined it with bank pension funds and had a $60 million head start.

Expensive Operation

It's more expensive to run a foreign mutual fund, too. Custodial arrangements have to be set up in many countries. Different currencies necessitate larger accounting staffs to value the fund. And qualified managers have to be found.

"It takes a pretty good slug of money to put together a staff along those lines," said NationsBank's senior vice president, Steven Duff.

The yearly expense ratio for the Nation's equity fund is 1.30%, on top of a load that ranges from 4% to 5%, depending on whether it is a front or back-loaded class of the fund. The non-advisory expense part of the yearly fee is 0.45%, compared to an average 0.25% on other NationsBank funds, Mr. Duff said.

"There's more risk in putting together an international fund and not having the expertise and running operating costs so high it's a burden to shareholders," Mr. Duff warned.

Henry Frantzen, chief investment officer for international securities for Brown Brothers Harriman & Co. in New York, says regional banks "should let us run it," but he expects regionals to play a bigger role in international equity funds.

Brown Brothers has a bank charter, but operates more like an investment management and trust company. It manages eight mutual funds, called 59 Wall Street (the bank's address) with $52.5 million in assets. The company manages $19 billion overall.

Though international funds have lagged U.S. funds in the 1990s, bankers expect that to change, and they want to be prepared. Says NationsBank's Mr. Duff: "These things run in cycles and we would like to have an established product."

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