It's not easy selling bond funds to bank customers these days.
That's why one bond mutual fund company is trying to rebound from the lingering effects of a miserable 1994 with a tax-free, fixed-income investment that offers more predictable returns than the typical bond fund.
Chicago-based John Nuveen & Co. is promoting unit investment trusts to help it make up for the 40% drop in sales through banks that it saw at the end of 1994.
Unlike a typical muni bond fund, unit trust managers invest in a small number of bonds - typically about 10 and 12 - and never change the portfolio. When the bonds mature or are called by the issuer, the principal is paid out to the investor.
And because the average maturity of the fund is in constant decline, the fund is less sensitive to swings in interest rates - which can drastically alter the value of a typical muni bond fund.
Benefiting from this reputation for relative stability, unit trusts have had a strong year. According to the Investment Company Institute, net inflows of cash for these funds were 13% higher in March than the preceding month.
Nuveen said that sales of unit trusts for the first quarter were 5% higher than a year earlier.
Jerome Contro, Nuveen's vice president and national bank division manager, isn't surprised by this year-over-year increase.
"UITs historically have sold well in down and volatile markets. They have more stable returns," he said.
Currently, unit trusts are yielding slightly above 5.40%, or just higher than certificates of deposit on an after-tax basis, Mr. Contro said.
Still, the company, which manages more than $30 billion of fund assets, is hardly giving up on its traditional offerings of muni and taxable bond funds.
Mr. Contro said his sales team is encouraging bank brokers to offer bond funds as part of a diversified portfolio.
Nuveen is also keeping open options to form an alliance with an equity fund company to help it give more variety to its offerings, he said.
Last December, Nuveen registered with the Securities and Exchange Commission to start a closed-end mutual fund that would combine municipal bonds with stocks in its portfolio. Aim Family of Funds, Houston, was the intended partner to manage the equity part of the fund.
"We never did bring that to market," Mr. Contro said. "We actually postponed the deal because the market was pretty volatile."
Mr. Contro said Nuveen does not have plans for an immediate release of the fund to the public, but the company is still entertaining the idea.
One bank consultant said its focus on tax exempt bond funds and unit trusts makes it tougher for Nuveen to rebound than companies that offer both equity and bond mutual funds.
"Nuveen is a strong and viable firm, but it has been monosyllabic in its fund offerings," said Geoffrey Bobroff, who is based in East Greenwich, R.I.
"The marketplace just hasn't been terribly receptive for the past 14 months," Mr. Bobroff said about Nuveen's bond funds. "Business has been flat to down."