Growth of bank-managed mutual funds kept pace with the fund industry at large last year, assuaging fears that the bank mutual fund engine had lost its steam.
Assets of mutual funds managed by banks and thrifts swelled 26%, to $492.4 billion in 1996, according to data prepared for American Banker by Lipper Analytical Services, Summit, N.J. All mutual fund assets increased 25%, to $3.5 trillion, last year, according to the Investment Company Institute, an industry trade group.
Just a year earlier, banks, for the first time in nine years, watched assets in their proprietary mutual funds grow more slowly than those of the fund industry overall. But by broadening their product lines and taking advantage of a new law allowing tax-free conversions of common trust funds to mutual funds, banks in 1996 appeared to get back on track.
"Historically, banks had allocated funds to more conservative money market and bond funds rather than to the equity side," said Galan Kaukas, chief administration officer at Fleet Investment Advisors, the asset management division of Fleet Financial Group, Boston. "But we and the industry at large increased equity offerings.
"It helped us keep pace with the industry," he said, "and will continue to as we go forward."
Stock funds accounted for 29% of bank-managed fund assets at yearend 1996, according to Lipper, up from 24% a year earlier. Despite that improvement, bank fund assets still lean toward conservative money market funds, which accounted for 55% of all managed assets in 1996. At the end of 1995, money markets had comprised 57% of all bank-managed fund assets.
Bank-managed mutual funds also got a boost last year from the conversion of common trust assets into mutual funds. No. 4-ranked Chase Manhattan Corp., for example, converted a whopping $4.8 billion of trust assets to mutual funds in 1996, creating 14 new funds in the process.
First Bank System's mutual fund unit, meanwhile, converted trust assets to start a health and sciences mutual fund in 1996, said John M. Murphy Jr., chief investment officer at First Asset Management, the Minneapolis bank's fund unit. The new fund helped the bank's family grow 75.4% in 1996, to $12.7 billion of assets under management.
The bank's latest offering joined a diverse menu of 12 other funds, including a real estate investment fund, a technology sector fund, and a small-cap product. Mr. Murphy also said nine of First Bank's 13 funds boast either four or five stars from mutual fund rating agency Morningstar Inc.
The ratings helped the bank's growing ranks of brokers peddle the funds, Mr. Murphy said. First Bank's broker force grew to 200 at the end of 1996, up from just 25 in 1994.
New product offerings helped Citicorp beat the industry average and log mutual fund asset growth of 38.5%, to $7.18 billion, last year. The banking company rolled out its CitiSelect asset allocation funds in 1996 and indefinitely waived their up-front sales fee.
That move helped the CitiSelect funds attract $621 million of new assets last year, a spokeswoman said. Citi's popular money market funds brought in another $1.67 billion in 1996, she added.
While bank-managed assets enjoyed healthy growth, an industry consultant warned that banks still have a distance to go in the fund business.
"The numbers suggest greater strength than when you look at individual retail bank funds," said Avi Nachmany, a partner at Strategic Insight, New York. A successful program needs a patient and stable management team and product quality, he said.
Bank funds generally have good performance records, Fleet's Mr. Kaukas said. But he admitted that they still lack the marketing savvy for which their nonbank competitors are known.
Indeed, credible performance by bank-managed funds is aiding sales through traditional broker-dealer channels outside banks' customer base, said Joy P. Montgomery, a consultant at Money Marketing Initiatives, Morristown, N.J. But bank-managed funds still bear the stigma of being poor performers.
At Riggs National Bank, Washington, D.C., Philip Tasho attributed the fund family's jump to No. 69, with $858.2 million of assets, from No. 79 ($582.1 million) in 1995, to the strong performance of a five-star-rated equity fund. He played down the division's bank ownership, which he said does not influence how Rimco, the mutual fund subsidiary, manages money.
"We couldn't have garnered a five-star rating if we did" allow an influence, he said.