National City Corp. is adding five mutual funds to the seven it already runs, in a bid to diversify its offerings.

In a relatively unusual twist, one of the new funds will invest in midsize companies in the same midwestern states in which Cleveland-based National City operates.

Banks appear to have found a niche in managing such regional equity funds. Lipper Analytical Services, a mutual fund researcher in Summit, N.J., reports that only 15 other such funds are in operation, more than half of which are managed by banks.

Jon Teal, a Lipper spokesman, said that regional funds had widely divergent performances, with some besting peer group averages and others lagging.

National City expects its new Mid Cap Regional Equity Portfolio to fare well.

"We really believe we can increase our odds of making the right decisions if we are making decisions on smaller companies operating in markets where we do business," said Sheila Rapp, National City's chief investment officer.

The Mid Cap Regional fund is due to open next week, with a $20 million starter investment from National City's pension fund, which is expanding its equity holdings, Ms. Rapp said.

Another of the new funds, the Equity Income Portfolio, opened earlier this month, also with $20 million from the bank's pension plan, which has a total of $280 million of assets.

National City also is aiming to seed its new mutual funds with money from its trust funds.

More Fund Infusions

Ms. Rapp said the bank plans to move $150 million into the Equity Income Portfolio from mirror-image personal trust funds managed by National City, once a tax penalty on such conversions is eliminated.

Two other bond funds, also started earlier this month, have already been seeded with $300 million from employee benefit trust counterparts operated by the bank. There is no tax penalty on these types of conversions.

Finally, a tax-exempt bond mutual fund is due out in August.

National City is the 29th largest proprietary mutual fund manager among banks, with $2.4 billion in its funds. Ms. Rapp said that National City's mutual funds have been average performers.

The company is also the country's 19th largest discretionary trust manager, with $33 billion of these assets.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.