In the first quarter, a period that saw many mutual funds rebound from a dismal 1994, bank fund managers had even more to celebrate than their nonbank counterparts.
Helped along by a conservative investing style and limited exposure to foreign markets, bank-managed mutual funds outperformed their rivals in three of four key categories, according to CDA/Weisenberger, a fund tracking firm in Rockville, Md.
Banks had the strongest edge in stock funds - a category where they have been regarded as late arrivals to the party. Bank-managed stock funds posted average returns of 5.94% in the first quarter - well above the 4.73% return for all stock funds.
Banks also made a strong showing in the taxable bond and mixed fund categories, with average returns of 4.11% and 6.33% respectively, compared to 3.74% and 5.98% for all funds in those groups. And they lagged only slightly in tax-exempt funds, posting a 6.21% return, versus 6.50% for the category.
The industry's performance edge in the first quarter should bolster bank marketers in their ongoing effort to win converts and dispel notions of inferiority. Their strong showing comes on the heels of a better-than- average result in 1994's fourth quarter, when virtually all mutual fund categories booked losses.
"Banks have been criticized for being too conservative, but we feel that we can do reasonably well without taking that much risk," said Carl Enloe, a portfolio manager at Mark Twain Bancshares, St. Louis.
His fund, the Arrow Equity Fund, was the top performing bank-managed equity fund in the first quarter, with a total return of 12.98%. Among all equity funds, it placed 22d in the performance rankings, CDA said.
Mutual fund analysts weren't surprised that bank-managed funds recovered more than the rest of the industry.
For one thing, "banks have fewer international funds than the rest of the fund industry," said A. Michael Lipper," president of Lipper Analytical Services, Summit, N.J. Thus, they largely escaped the continued drubbing that international funds - particularly those that invest in emerging markets - experienced in the first quarter.
The handful of banks that have waded into international waters came in for some grief, however: international funds dominated the lower rungs of the bank-managed equity fund rankings. UST Master-Emerging Americas, managed by United States Trust Corp., New York, was the worst of the lot, losing 25% during the quarter.
The quarter was also characterized by an investor flight into less volatile and more liquid U.S. companies with large market capitalizations. And bank funds, with their conservative orientation, have a heavy weighting in large-cap stocks.
During the quarter, bank-managed funds that invested in U.S. equities delivered almost 1% more than their nonbank peers, said John Rekenthaler, editor of Morningstar Mutual Funds, a Chicago-based newsletter. He said the average stock in a bank-managed fund has a market capitalization of $6.3 billion, compared with $5.1 billion for nonbank funds.
Though the reasons bank-managed taxable bond funds outperformed the entire universe of such funds are less clear, Mr. Lipper said it also might also have to do with the bank funds' relative conservatism.
"Banks' bond funds are in higher quality paper, and they are a little longer in maturity," he said. "Because rates declined a bit in the first quarter, that gave them a benefit."
The top two berths in the taxable bond fund category went to different classes of a single mutual fund managed by LaSalle National Trust, a Chicago-based unit of Dutch banking giant ABN Amro Holding. The trust class of LaSalle's Rembrandt Global Fixed Income Fund posted a 12.05% yield, while the investors' class posted an 11.96% yield.