Growth in bank-run money funds was uniformly outstanding in the first two months of 2001, but fund groups' plans for this windfall are hardly uniform.
Assets of bank-run mutual funds as a group grew 4.5% in January and February, against growth of 1% for all mutual funds, a report by Goldman Sachs Group says. Bank money funds rose 10.2% for the period; their growth for all of 2000 was 21.4%. Nonbank money funds also had marked growth in the first two months - 9.4%.
The Goldman Sachs report also noted that bank fund families generally have more assets in money market funds than nonbanks. Money market funds were 64.1% of banks' total mutual fund assets through Feb. 28, versus 29.3% for the industry as a whole.
What are the banks doing with these assets? All sorts of things.
Glen Martin, director of product development and marketing at FleetBoston Financial's Fleet Investment Management and interim manager of Fleet's Galaxy Funds, said investors are increasingly parking their assets at money funds until the market rebounds or until their advisers counsel them to start shifting assets.
Fleet is taking an aggressive stance with Galaxy Funds. It plans to start a fund later this year that will be "less sensitive to overall market conditions," to encourage investors to keep their money in the fund family, he said.
Jeff Vogelbacker, managing director at SunTrust's Trusco Capital Management, said the bank money funds' inflow gains position a bank for future earnings. Investors generally move money fund assets to equity and bond funds in the same fund family once the market rebounds, as long as those funds have solid performance histories.
Trusco manages STI Classic Funds, SunTrust's mutual fund family.
SunTrust, which has $23 billion in its fund family, had the best growth among bank-managed mutual funds in January and February, the Goldman Sachs report found. Assets in the STI Classic Funds grew 12.5%, against 5% for all of 2000. SunTrust's money market funds - from current fund shareholders and from new customers alike - stood at $14.8 billion through February.
Mr. Vogelbacker said his funds' salespeople have been advising clients to move some of their assets into short-term bond funds, to boost portfolio performance without increasing risk. Once equity markets improve, he said, the bank tries to get the reps to encourage investors to shift more of their money into stock funds.
That strategy appears to be working, Mr. Vogelbacker said. With the recent rally, investors began moving some assets into the bank's equity funds, but it's too soon to tell how much has shifted, he said.
William Ennis, president and chief executive officer of Evergreen Investment Services, First Union Corp.'s mutual fund division, said investors' flight to safety benefited bank fund families with diversified products.
Evergreen's total fund assets rose 4.2% in January and February, against 5.5% for all of 2000, according to the Goldman Sachs report. Evergreen says its six money market funds brought in a record $7 billion in the first quarter. At the end of February, money market funds were 59% of the fund family's total assets under management.
Despite these industrywide record money market fund inflows, Mr. Ennis said, investors will be slower to return to equity markets than they have been in recent years, since many are still smarting from the decline in their portfolios over the past year.
Evergreen says it has not set a strategy to prevent its newly acquired money market assets from leaving once the market turns back up, but Mr. Ennis said he is confident that most of those assets will stay in Evergreen funds.
Banks were less successful than the rest of the industry at attracting money to their equity and fixed-income funds. The Goldman Sachs study found that bank equity funds had outflows of 0.3% in January and February, compared with a gain of 3.6% industrywide. Inflows for bank fixed-income funds were 1.2%, versus 12.6% industrywide.
Jennifer Thompson, vice president and commercial bank analyst at Putnam Lovell Securities Inc. in New York, said investors tend to be less fond of banks' equity funds. They feel that other funds perform better and that nonbank-managed fund groups are less conservative in their investment goals.
Ms. Thompson noted that bank equity and bond funds have underperformed their nonbank counterparts for some time. According to a report issued by her company in March, bank-run funds' net 2000 outflows equaled 3% of assets under management - the same percentage as mutual fund assets industrywide. And in the three years that ended in December, Putnam Lovell found, those funds returned an average of 34.3%, versus 46.6% for all funds.