Over the long term, some mutual fund companies do not expect the hiccup in international markets to sour bank customers' increasing taste for international mutual funds.
Instead, they predict that after a short-term reassessment, the ever more sophisticated bank customer will continue to want the diversification that international mutual funds provide.
"What we've seen is an increase in the number of international equity funds being sold through the bank channel," said Lisa M. Jones, senior vice president and director of the financial institutions division of Massachusetts Financial Services, the nation's oldest mutual fund company. "We're seeing many of our institutions beginning to include emerging market funds and country specific funds."
The trend mutual fund companies are noticing is clearly reflected in Investment Company Institute statistics. In Dec. 1996, $1.06 billion flowed into international stock funds. In the latest figures available for September, investors poured $2.08 billion into the funds. Roughly 10% of stock fund assets are now in international stock funds, an ICI spokeswoman said.
To meet the increasing demand for international funds, MFS now has eight dedicated specialists in foreign markets.
Another will be sent to Singapore shortly, Ms. Jones said. MFS Research International Fund will be introduced soon, according to John Riley, a spokesman for MFS. As with its other "research" funds, stock analysts are allowed to buy and sell issues on their own, cutting out a layer of expense, he said.
At OppenheimerFunds Inc., several developing market and emerging market funds have been added in the past year to meet the needs of all of its customers. "You are seeing a shift toward the value of international investing by the (bank) channel," said Maryann Bruce, senior vice president and director of financial institutions at the New York-based fund company.
Among all customers, Oppenheimer's Global Fund was not a top-10 seller in 1996, Ms. Bruce said. This year it's up to No. 7.
Ms. Bruce points out that bank customers still lag the general market in moving into international funds. The typical bank customer is newer to investing than other clients.
"As you're moving out on the risk curve you're not going to start with international," she said.
Even though bank customers remain more conservative than the general marketplace, Ms. Bruce detects a narrowing of the gap. "I used to think the lag was two to three years, now I think it's 10 to 12 months," she said.
Many banks have been selling funds for five to 10 years and customers are becoming more likely to diversify, she said. And bank brokers are working to educate customers about diversification just as much as other brokers, she said.
"The bank brokers know they want to get there, but they are just getting there more slowly," she said.
"The bank customers are the last ones to go international," said Joy Montgomery, president of Money Marketing Initiatives, Morristown, N.J.
Ms. Montgomery said recent international volatility will temper investor's rampant euphoria. "I think that it is going to spook many conservative bank investors. They are going to shy away from the sector."
But like both Ms. Jones and Ms. Bruce, she expects the trend toward international funds will resume after the jitters subside.
"I'm hoping they'll just have short term nervousness," Ms. Bruce said.
Part of the job of brokers will be to reassure investors to stick with sound, basic investing principles, she said. That should include diversifying through international holdings, she said.
While each individual's diversification needs will be different, on average a portfolio should have from 10% to 40% in international investments, she said. Ms. Bruce points out that some customers are already have international holdings although they might not realize it.
About a third of Oppenheimer's top-selling fund, the Strategic Income Fund, is in international investments, she said. The fund is considered an international fund despite the overseas holdings, she noted.
While some banks are adding country specific funds, MFS' Ms. Jones said her company has no plans to enter that area. As the last two weeks have shown, focused funds exposed customers to additional volatility, she said.
General international, developing, and emerging growth funds will continue to be strong sellers, the mutual fund executives said. And banks will continue to add to their product lineups. As Ms. Montgomery said, even small institutions are adding general international offerings.
Mr. Moore is a freelance writer in Mt. Vernon, Maine.