Looking for mutual funds that invest mostly in community bank stocks? Look no farther than Columbus, Ohio.
A second boutique investment firm from Columbus is set to introduce a fund that will primarily buy shares of banks with assets of $500 million to $7 billion.
Fund manager Joseph McCloud, vice president of Diversified Capital Markets, said the Merlin U.S. Community Bank Stock Fund will begin to buy shares of banks in Ohio, Florida, Illinois, Indiana, and Michigan after Sept. 8. Investments will be made in other parts of the country once the fund is registered in other states.
Mr. McCloud said that, despite the less-than-stellar performance of small-bank stocks this year, the market can support a second community bank investment fund. In his view, community bank stocks, which he likened to "a jewel waiting to be polished," are undervalued in relation to their earnings over the past 12 months.
"Community bank stocks have taken it on the chin, but these banks are still making money," Mr. McCloud said, adding that the fund will target individual investors.
Big-bank stocks have posted a 24% gain the past 52 weeks, while publicly traded banks with assets of $500 million to $1 billion have generated a return of 1.28%, according to the SNL Securities Bank Index. Stock prices of banks with assets of $1 billion to $5 billion are returning 4.46%.
Mr. McCloud's local competitor -- Banc Stock Group Inc. -- applauded his effort. Michael Guirlinger, chief executive officer of two-year-old Banc Stock Group, said he hopes a second fund will bring more attention and more liquidity to small-bank stocks, which are often thinly traded.
"It's a terrific idea," Mr. Guirlinger said. "The more buyers, the better."
Mr. McCloud's fund would do well to match the performance Banc Stock Group has had this year. It has posted a 5.84% return this year, compared with a combined 2.30% decline for all banks included in the SNL Securities Bank Index.
Mr. McCloud, who has never managed a portfolio of bank stocks, said his fund will invest in about 100 banks and aims to have $5 million of assets under management within 12 months and $50 million in five years. The minimum investment is $1,500.