Banks Near Record PaceIn Launching Stock Funds

Spurred by rising consumer demand for equity mutual funds, financial institutions are expanding their offerings at a near-record clip, according to data compiled for American Banker.

Banks unveiled 93 equity mutual fund portfolios in the first quarter of 1997-the strongest showing in two years, according to the data from Lipper Analytical Services, Summit, N.J. The new funds bring total bank-managed equity funds to 1,226 as of March 31, with assets of $149.3 billion.

If launches continue at this pace, banks would easily eclipse their tallies for 1995 and 1996, when they unveiled 214 and 241 stock portfolios, respectively.

Observers said the push shows how banks are racing to fill in gaps in their product lines as customer tastes shift toward equity funds.

"Customers have gone there in droves, and banks are now attempting to follow the customer there," said Donald E. McNees, principal in the New York office of Towers Perrin General Management Consulting, Atlanta.

Indeed, some banks say nearly all their sales volume is coming from stock funds these days. At First Union Corp., for instance, 90% of business is in equity or balanced funds, which contain a mix of stocks and bonds, said William M. Ennis 3d, president of the company's Evergreen Investment Services unit.

First Union had $13.4 billion of equity assets under management on March 31-making it second among banks only to Mellon Bank Corp.'s Dreyfus Corp. unit. First Union, based in Charlotte, N.C., once concentrated in bond funds, but now 48.2% of its fund assets are concentrated in equities, though it relied more on acquisitions than on fund launches to get there.

"Acquisitions have helped us fill out our product spectrum," Mr. Ennis said. "Banks today don't have full, mature product lines, but they're catching up at an accelerated clip."

The Lipper data on new equity funds are part of American Banker's quarterly ranking of bank-managed fund assets. Lipper also found that banks boosted their assets under management by 4.85% in the first quarter, to $518.9 billion, outpacing the broader fund industry, whose assets climbed 3.91% to $3.325 trillion.

Bank fund assets were up 22% from the first quarter of 1996. The asset rankings, along with first-quarter performance data from CDA/Wiesenberger, Rockville, Md., begin on page 14.

The Lipper data didn't specify how many of the additions to its bank mutual fund data base were completely new equity funds and how many were simply new share classes-that is, versions of existing funds with new features such as back-end sales loads.

But a review of 36 filings for new bank-managed funds in the first quarter showed that 16 were brand new. (The numbers of new filings and new launches in the first quarter don't match up because of lag time between when a new fund comes out and when it gets entered into the Lipper data base.)

Industry observers attribute the spurt in new equity offerings to the growing maturity of bank fund programs. While the number of banks entering the mutual fund business has slowed dramatically, many of the banks in the business are determined to expand their offerings.

Bank fund executives who are committed to the business are trying to develop diverse menus that include popular offerings such as small-cap equity funds and technology funds, said Mark H. Samuels, managing director of SEI Investments' proprietary fund group, Oaks, Pa. Expanding in this way is vital if banks want to keep up with their more experienced competitors, he said.

But, Mr. McNees warned, banks' timing may not be ideal.

"Long-term, banks going into equity is a good move. They were under- represented there and didn't offer a full product array," Mr. McNees said. "But short- to medium-term, banks have to ask themselves if they're getting into the market at or near the peak."

Among the banks that launched equity funds in the first quarter was Summit Bancorp, Princeton, N.J. It added an equity growth fund-its second stock fund-to fill out its Pillar Funds family, said Hilton Jervey, senior vice president of the bank's investment department.

The bank already offered an equity income fund, which received Morningstar's highest rating, five stars. In January, when the bank converted some trust funds into mutual funds, it decided it was time "to rationalize our product line" by filling gaps, Mr. Jervey said.

"We felt there is a place for both styles" of equity funds, Mr. Jervey said. He said the bank is considering further additions to its fund lineup, perhaps including a small-cap equity fund, a high-yield bond fund, and an international bond fund, all of which would be subadvised.

New products are helping some banks amass fresh assets. Northern Trust Co., for instance, moved up four slots in the Lipper ranking in the first quarter, to No. 8.

Some of this growth was by fueled new funds-a technology fund and a stock index fund-that the bank unveiled late last year, said Lloyd Wennlund, managing director for the Northern Funds and president of Northern Trust Securities, the bank's brokerage subsidiary. However, he said, a new marketing push helped, too.

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