When Mercantile Bankshares' CEO, Edward Kelly 3d, replaced the company's investment management chief in March, he promised a change in focus under the new manager of a shop that had emphasized developing hedge fund products it could offer to other companies.
With the Mercantile investment and wealth management division's introduction of five retail "lifestyle" funds last week, analysts perceived a sharp turn in the unit's strategy away from hedge funds. However, Kevin A. McCreadie, the chief executive officer and chief investment officer for Mercantile investment and wealth management, says, "Our strategy remains consistent in terms of what we hope to bring to our customers. We just want to bring another innovative product to a group of interested customers" of the bank.
The banking company added co-branded Mercantile Dow Jones Portfolio Funds - the first retail risk-based portfolios offered by Dow Jones. The products, unlike the array of hedge funds managed by Mercantile's investment and wealth management division, are intended for retail investors and require a minimum investment of $1,000 or monthly investment of $25.
"This is a sharp right turn in terms of target audience and target markets," said Kevin Daniels, a Boston analyst. "This is a firm that pledged to grow by offering hedge funds. Now they are going to a very conservative, very traditional mutual fund approach."
In March, the company fired two top wealth management executives, John Pileggi, the chief executive officer of investment and wealth management, and Michael Donnell, a senior vice president. Mr. Pileggi had been named chief executive of the wealth management division in September after Wallace Mathai-Davis stepped down in an apparent clash of views with Mr. Kelly and the board of directors.
Mr. Kelly said in an interview after the firings in March that wealth management would change its focus under the leadership of Mr. McCreadie. Mr. Mathai-Davis had focused the group on developing hedge fund products that it could offer to other companies.
"Mercantile wanted to stand out with a unique hedge fund strategy. Now it looks like they will be satisfied with something much much more vanilla," another analyst said.
Mr. McCreadie said the new products do not signal a strategic change, however.
The new funds are perfectly aimed at Mercantile's customer base and complement its existing menu of products and services, Mr. McCreadie said. The investment management division manages $23 billion of assets, including $3.5 billion in 23 mutual funds.
"We want to capitalize on our banking customers," he said. "These new products are strong and conservative and will appeal to our retail customers throughout our branch structure."
The five index funds, which were introduced Friday, are the Dow Jones 100, 80, 60, 40, and 20 U.S. portfolios. Each presents a different risk level.
John Prestbo, an editor at Dow Jones, said the portfolios mix stocks, bonds, and cash products to suit customers' risk tolerance. "One size may fit many, but it doesn't fit all," he said. "Investors need a product that is flexible and allows them to control their risk tolerance."
The products are similar to lifestyle funds offered by other companies, Mr. Prestbo said, but the Mercantile Dow Jones Portfolio Funds adjust more frequently, based on risk and market conditions, than typical lifestyle funds that change allocations annually or semiannually.
"These are transparent products that explicitly lay out risk and reward to customers, and they are rebalanced monthly to continue to react to the risk standards," he said.
Mr. McCreadie agreed, saying, "I think it is vividly clear that some investors took too much risk when the market was up. These products will allow customers to manage their risk."
Fidelity Investments with its Freedom Funds is another company offering lifestyle products, and Mercantile introduced a set of lifestyle funds for its 401(k) retirement services unit on Thursday.
Mr. McCreadie said the portfolios will be attractive for bank customers, third-party intermediaries, and 401(k) plans. "We think the opportunity for these products [is] great, and our expectations are high about the amount of assets they will attract," he said.
