Mitchell Hutchins Asset Management, a unit of PaineWebber Inc., has given up direct management of most of its mutual funds, outsourcing the managing of 19 out of its 25 portfolios.

The change effectively makes Mitchell Hutchins a boutique shop, said Brian Storms, its president and chief executive officer. The firm will now focus on three areas in which it excels, he said, short-term, fixed-income management; quantitative investment management (sticking to a model or index without using a portfolio manager); and municipal securities.

Mitchell Hutchins continues to manage six funds: PaineWebber’s Strategy, Tactical Allocation, Financial Services Growth, S&P 500, Enhanced S&P 500, and Enhanced Nasdaq 100 portfolios. The other 19 funds were outsourced to companies including Goldman Sachs, State Street Global Advisers, and Alliance Capital Management.

It plans soon to develop a subadvisory business, Mr. Storms said. In addition, he said, he believes that the move by many financial services firms in recent years to try to be all things to all investors has created overcapacity in funds and services. His company’s move, he added, could foreshadow similar decisions by others to shed or outsource the management of unprofitable funds.

But other observers said Mitchell Hutchins’ move shows how quickly financial services firms must turn around failing departments to prevent negative public sentiment from hardening. Russ Prince, a financial industry consultant in Shelton, Conn., said that only a handful of firms have the capacity to succeed in every area they enter and management must quickly discard business models that do not work.

Mitchell Hutchins has chosen to retain management of its funds that are typically less volatile and require less active management than those it has outsourced, Mr. Prince added.

The company decided to pare its asset management business last spring after it found that performance records were no better than average at too many funds and were subpar at several, Mr. Storms said.

Most fund families face challenges from new investment products, such as online advice providers and separate accounts, Mr. Storms said. And advisers routinely favor just a handful of the thousands of mutual funds on the market, he added.

“The market is too mature, and investors are too discerning” to support all the investment products being offered, he said.

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