At a time of the greatest investor uncertainty in a decade, Evergreen Funds has launched an ambitious advertising campaign touting its experience through the brutal bear market of 1973. The company hopes this strategy will help it attract the business of shaky investors-a good number of whom know nothing less than a bull market.
The day after equity markets began to slide in the third quarter, the asset management subsidiary of Charlotte, NC-based First Union Corp. hit the national press with a wave of ads. One, showing a cherubic boy on a Big Wheel, teased shaken investors: "In 1973 we were riding out a bear market. What was your fund manager riding?"
The first pitch in Evergreen's branding campaign was a not-so-subtle poke at funds run by less experienced portfolio managers. Evergreen, founded in 1971 and with 70 mutual funds under its purview, says that its average fund manager has 19 years experience while claiming that the industry average is 3.5 years (One critic says the comparison is misleading, though Evergreen stands by the figure from a trade magazine.).
Is Campaign Honest?
"We've always said that we manage wealth and we manage risks," says Ruth Papazian, senior vice president and director of marketing at Evergreen. "This market has boomed and there are a lot of new funds with new managers who don't have the experience that our team offers."
The timing of the company's first ever national brand campaign was part blind luck and lots of planning. Papazian says she is tripling her advertising budget, but won't say how much she is spending on the campaign designed by San Francisco-based Hal Riney & Co. "This is a stake in the ground for us," she says.
But John Rekenthaler, research director at Chicago-based Morningstar, says: "I don't think (the Evergreen campaign) is honest. It's about as honest as the typical political ad."
Rekenthaler says the branding strategy works because the typical mutual fund investor is in his 50s and the marketing effort creates a bogeyman of highly paid young Turks who manage money. "Knocking youth plays well with (older mutual fund investors). They are setting up an enemy to attack," he says.
While the move toward a branding campaign is rare among mutual fund companies, the decision by Evergreen comes as the industry is at cross roads. After years of double-digit returns, mutual fund companies are now forced to rethink how to change a marketing model driven by funds' performance. Consider this: Morningstar Inc. says that the S&P 500 was up 6.01 percent year-to-date through Sept. 30, while the typical diversified U.S. equity fund was down 5.1 percent. This after years of double-digit performance that raised investors expectations.
So far, approaches seem to be divided between those who see the third quarter decline as a correction versus those who see it as the onset of a bear market. Veterans of the sector note that fewer ads are featuring performance indicators. "Everybody is running scared for now. Investors are generally shell-shocked, but they have been largely standing pat, which means all that education about being a long-term player appears to have paid off," said the president of one mutual fund family who asked not to be identified. "The question is how do you grow your business in a more volatile market when people want safety. Money will still flow in, but people may suddenly be more sensitive to fees."
The mutual fund business has largely sold itself on beating averages. "Performance is a hurdle that you have to pass. In this business, you have to be above average, but you don't have to be great," says Rekenthaler. "Steady is good in this business. Up and down or unreliable is not good. Manic performance is very bad."
Few believe the industry will shake its long-held addiction to performance-based marketing. The last major shift in marketing strategy occurred in the wake of the 1987 market crash. Fund companies began putting a human face on their management for the first time. Rekenthaler credits Berger Funds' founder Bill Berger for being the first to do so. With his Santa Claus-like demeanor, Berger fostered the image of the investment sage from Denver.
The fact that his funds were consistently top performers didn't hurt either. Others followed, though many organizations have resisted personality driven campaigns because of their tendency to backfire if top talent defects or, worse, falters. SEC regulation hasn't always been helpful. A few years ago, Franklin-Templeton Funds wanted to use quarterback Joe Montana to pitch its funds, but regulators squashed the idea of a celebrity endorsement.
In fact, fund families such as Putnam on the broker side and T. Rowe Price on the retail side are credited with building a faceless team. Vanguard has taken that even further, relying on spartan advertising and its press-driven image as cheapskates who keep costs low and performance strong. So trend-defying is Vanguard's approach that last month it sent letters to shareholders advising them that despite the devaluation of most stocks they should not buy shares of its equity funds-yet. The reason: the likelihood of a December taxable distribution. "They are demonstrating that they are putting the interest of customers first," says the fund family president. "I don't know of anyone else who spends money to tell investors to keep their money. We sure haven't." Indeed, many companies sent out sober letters in the third quarter to investors to warn about bad news arriving soon in their quarterly statements.
For Evergreen, the move toward branding comes after a wave of strong growth. When First Union acquired the company in 1994, Evergreen had $3 billion in assets under management. A couple of acquisitions and a bull market later and the company is the 22nd largest fund family with $51 billion in assets.
But its focus on promoting its experience versus an industry average draws criticism from Morningstar's Rekenthaler.
Youth can be a Plus
He says that while some baby-faced money managers are in the industry, most-as the Evergreen ads assert-are not so inexperienced. Many fund managers have up to five years of experience as analysts before they call the shots. Others are veterans of an industry with plenty of experience but new to running money.
But Rekenthaler questions whether youth is a liability in a bearish market. "There's really a question of whether experience really means anything in a downturn. You can look at Evergreen and I don't think they've been distinguished over time," says Rekenthaler. He says that all but one of Evergreen's 36 equity funds lost money in the third quarter and only 11 of those are up for the year. "If we had a time machine, I'm sure we'd all go back and gladly give our money to a 30-year-old Peter Lynch or a 30- year-old Warren Buffet rather than a 50-year-old manager."
An Evergreen spokesman points out that 19 of its fund carry the highly coveted four or five star ratings from Morningstar.
But Evergreen isn't backing off the focus of its branding campaign. In February, it expects to take its campaign onto national TV for the first time. Their bet: Experience will be a big seller with rattled investors, many of whom will take to watching the tube instead of the Dow.