Bank-managed mutual funds slightly lagged behind their nonbank counterparts during the second quarter, a period that saw a rally in both the stock and taxable bond markets.
The strong returns in domestic stocks and bonds, combined with a recovery in international equity markets, gave an edge to nonbank funds, which generally have a more aggressive exposure to these markets than their more conservative bank counterparts.
During the period, nonbank stock funds posted average returns of 7.91%, edging out bank funds by a tenth of a percentage point, according to CDA/Wiesenberger, a Rockville, Md., fund tracking fund.
The bank-managed stock funds with the strongest performance during the quarter were First Bank System's First American Technology, U.S. Trust Corp.'s UST Master-Emerging Americas, and Wells Fargo's Overland Express Strategic. The funds were up 22.8%, 19.97%, and 17.57%, respectively.
The nonbank funds also outperformed their bank rivals in taxable bond and mixed funds, with average returns of 5.1% and 7.08%, respectively, compared with 4.84% and 6.86% for the bank funds.
Huntington Bancshares' Monitor Mortgage Securities was the top- performing taxable bond fund during the period, with a 10.89% return, while Dreyfus Asset Allocation-Total Return took top honors in the mixed category, gaining 9.64% .
The only category during the quarter in which banks showed supremacy was tax-exempt funds, though the advantage was little consolation given the overall weakness of a category racked by fallout from the Orange County debacle and investor concerns about a federal flat-tax proposal that would endanger the attraction of tax-free bonds.
The average return for bank-managed munis was a paltry 2.11% for the period, compared with nonbank's 1.88%. UST Master-Tax Exempt Intermediate led the pack of bank-managed muni funds.
While nonbank funds had the edge in the quarter, bank fund managers and their customers had little to complain about.
For one, nonbank funds registered only a slight edge in performance. And the bank funds, benefiting from buoyant domestic markets, registered stronger returns in the stock and taxable bond categories than they did during the first quarter, a period in which they outperformed the nonbanks.
"It's hard to make a case that the banks did worse than the nonbanks during the quarter," said Jon Teall, a research analyst with Lipper Analytical Services, a Summit, N.J., fund tracking firm. "The numbers are awfully close."
The second quarter was particularly kind to technology mutual funds, so it's no surprise that the top-performing bank-managed equity fund - First American Technology - was in that category.
The 18-month-old fund, one of the newest offerings of the 24- fund First American family, is managed by First Asset Management, the investment arm of Minneapolis-based First Bank System. The fund, which has $15 million in assets, was up a whopping 22.8% during the quarter and 29.38% for the first six months of the year.
These stellar results were achieved through investments from small-cap semiconductor companies to blue chips such as Hewlett-Packard.
The technology fund is considered among the most aggressive of First American's offerings, said John Murphy, the chief investment officer of First Asset Management.