NBD Bancorp has added two mutual funds to its proprietary family, bucking a recent trend toward battening down with existing offerings to ride out a stormy market.
The Detroit-based bank has added the Woodward Short Term Bond Fund and Woodward International Equity Fund to meet current customer needs and to position the Woodward Funds for future growth, said Richard Foersterling, first vice president of trust business development.
There are now 17 funds in the NBD proprietary family, which has more than $6 billion in assets.
With the new funds, and a proprietary annuity to be added later this winter, the bank will have the lineup to go forward with plans to privately label the funds for marketing through other banks, Mr. Foersterling said. NBD also plans to add more ways to pay sales charges on its funds. The bank is going ahead with these plans despite the sales slump in mutual funds over the past year.
"When you're in this business, you know you are going to have these types of cycles in the marketplace," Mr. Foersterling said. "We've had a long-term business strategy."
Industrywide, though, banks have shifted to a slower pace in launching new funds. Banks introduced 46% fewer funds and classes of shares in the last half of 1994 than in the last half of 1993. Just 149 were introduced in the last six months, compared with 264 for the same period in 1993, according to preliminary figures from Lipper Analytical Services Inc.
Mr. Foersterling said the new funds will meet some specific needs that the bank's customers have identified. The international fund helps customers diversify their portfolios. And the short-term bond fund provides nervous investors a shorter-term instrument, he said.
The creation of these funds was prompted in part by Essex Corp., NBD's third-party marketing partner, Mr. Foersterling said. Essex was particularly pushing NBD to add an international fund. That was obviously a good idea, given the current emphasis on that market segment, Mr. Foersterling said.
NBD is looking for Essex to play a key role in the bank's expansion of its investment product business, Mr. Foersterling added. Last February, in fact, Essex was given the additional role of co-distributor of the Woodward Funds with First of Michigan, a Detroit-based regional broker-dealer that had been the sole distributor.
"We felt that Essex had unique expertise in the retail marketplace in their experience of working with other banks," Mr. Foersterling said.
The unusual situation with two distributors has worked surprisingly well, said William N. Wade, senior vice president of new business for Essex. First of Michigan's strengths in institutional business, administration, legal, and regional knowledge mesh well with Essex's national retailing expertise, he said.
When Essex bid for the new responsibilities, it chose not to seek duties in those areas where First of Michigan is strong, Mr. Wade said.
With the two new funds, Mr. Wade said the holes Essex had recognized in NBD's product line have been filled. Now, he said, Essex and the bank can proceed with the plan to approach other banks about setting up a master- and-feeder-like structure for the Woodward Funds.
Private labeling is an important feature in NBD's strategic plan because it could drive sales rapidly, Mr. Foersterling said. While working on that possibility, the bank is looking at how to better package its products.
By later in the year, Mr. Foersterling would like to have alternative fund pricing to the current front-end loads. In addition, the bank is looking at other packaging methods like asset allocation.
Mr. Moore is a freelance writer based in Vassalboro, Maine