Banks looking to spice up their mutual fund offerings with some specialized international portfolios now have a few more choices, courtesy of Federated Investors Inc.
Though mutual fund investors have warmed to overseas investing in recent years, many banks and their customers have been slow to join the party.
Federated's challenge is to convince bankers that its five new international specialty funds, including emerging markets and small company offerings, and four revamped older international funds are the way to go.
"People can't turn their backs on international investing anymore," said Henry A. Frantzen, executive vice president and head of Federated Global Research Corp. which manages the funds. "The international markets are ripe to grow."
The Pittsburgh-based mutual fund giant has bet big on overseas investing. Last spring, the company established a unit in New York to manage money internationally. Federated is counting on its existing bank relationships and high-powered portfolio management to win new business.
By yearend, Federated expects to double the $500 million in international assets it currently manages through sales in equal measure to bank trust and retail brokerage units, a company executive said.
But Federated may find it tough to sell volatile niche products such as its Latin American fund, even as diversification tools.
"They're going to have to show me how that level of asset allocation makes a measurable difference in a client's portfolio," said Alan W. Kennebeck, executive vice president for trust and brokerage operations at Amcore Financial Inc., Rockford, Ill. "Out here in the heartland, investors are getting more sophisticated but they're not getting into sector funds."
Retail brokerage customers at Cal Fed Bancorp, Los Angeles, haven't been clamoring for such products either.
"We still skew toward an older clientele who tilt toward capital preservation," said Jeffrey A. Rigsby, president of CalFed Investment Services. "There's been a lot of talk on the foreign side but we haven't seen it pop yet."
If Federated comes selling its wares to him, he warned, it "would be pretty tough" to land a spot on his preferred list of mutual funds. "We look for highly visible, highly recognizable names with good long-term records in the business," said Mr. Rigsby, who questioned whether Federated could pass those tests.
But Federated, which began officially marketing the new international funds only last Friday, remains optimistic.
Company executive said 15 or 20 banks bank trust departments and 42 bank brokerages have committed to begin using the funds over the next few months.
"We don't expect huge immediate cash inflows," said James F. Goetz, president of Federated Securities Corp., which sells to broker-dealers. "But this is a long-term strategic commitment we've made to a market we think will continue to grow."