Banks that manage aggressive equity mutual funds had something to brag about in the second quarter of 1993.
Mutual funds that invest for maximum capital pin in small companies and international stocks turned in the best performance among bank-run funds during the second quarter, according to a survey for the American Banker.
The returns notched by the top three funds ranged from 7.14% to 9.82%, easily beating the 0.4% average return on stocks that make up the Standard & Poor's 500 index.
Against the Grain
The results could help counter the image of bank funds as stodgy underperformers. But as a practical matter, they may not have much impact on banks' efforts to market aggressive funds because bank customers consistently favor conservative investments.
For instance, the top-performing fund -- Bank of Oklahoma's American Performance Aggressive Growth Fund -- had just $13.3 million in assets on June 30, making it tiny even by bank standards.
"It has done well for us, but we know in the back of our mind that it's never going to be a $1.5 billion fund," said Mike Mantle, a client services manager with the Winsbury Group, Bank of Oklahoma's mutual fund distributor.
In fact, he noted, the fund's assets fell below $11 million in July because an institutional investor redeemed shares.
9.82% over Three Months
The fund, which invests in small but promising companies, returned 9.82% in the three months from April 1 to June 30, according to the survey by CDA/Weisenberger, a mutual fund tracking service in Rockville, Md.
First of American, Kalamazoo, Mich., snared the No. 2 position with its Parkstone Small Capitalization Growth Fund. The fund returned 7.63% during the quarter.
Great Western Financial Corp. of Los Angeles grabbed third place with its Sierra Strategic International Growth Fund, which returned 7.14%.
The fund, with $43.5 million in assets, has attracted quite a few individual investors, said F. Brian Cerini, chief executive of Great Western Investment Management.
"We feel People can actually reduce their risk by diversifying and including some international shares in a mutual fund," he said.
Group Generally Under Par
On the whole, bank-managed equity funds turned in a subpar performance during the second quarter. The 168 bank-managed equity funds eked out a scant 1.0% average total return -- well below the 2.9% averaged by all equity mutual funds.
One explanation is that the long-term growth funds favored by bank customers have been "the laggards among equity funds this Year, by a good 1% or 2%," said Jay S. Nadler, who is general manager for CDA/Weisenberger.
"Certainly, it's been a rollercoaster year for blue-chip stocks," he added.
Even more popular among bank customers are fixed-income funds. But those funds, too, Produced unspectacular results during the quarter.
On average, the 240 bank-managed fixed-income funds returned 2.4%, compared with 2,9% for all fixed-income funds. That's shy of the 3% return posted by a bond index calculated by Lehman Brothers.
First Interstate Bank's Westcore Long-Term Bond Fund look the NO. 1 spot for taxable fixed-income funds, returning 4.50% in the second quarter.
Among tax-exempt fixed-income funds, the leader was Barnett Banks' Emerald Florida Tax-Exempt Fund, which returned 4.33%.
While high-risk stock funds are a still a rarity in the banking industry, Mr. Nadler thinks that is beginning to change.
"Going forward, I think we'll see some more aggressive equity funds being introduced in the banking community," he said.
The demand for such funds will come from bank customers, as they "start to diversify their portfolios and take a little bit more of an aggressive posture," he added.
One area of expansion for banks has been international equity funds. Of the 43 international equity funds managed by banks, 32 have been launched since 1990, according to a recent report by Lipper Analytical Services Inc.
Funds that invest abroad took five of the top 10 spots in the bank mutual fund performance stakes for the second quarter.
The international funds have proved particularly popular with institutional and trust clients, said Catherine Gordon, senior investment officer at Wilmington Trust Co., Wilmington, Del.
"International, along with small-capitalization stocks, is the best place to be long term," Ms. Gordon said. "It's clear to us that foreign economies as a group are likely to grow faster than the U.S. economy." The bank's Rodney Square International Fund came in No. 6 in the second-quarter rankings, with a 5.95% return.
The survey also showed that bank-run equity funds are, for the most part, quite small. Among the top 10 performers, only two had more than $ 1 00 million in assets, an amount that is commonly cited as a minimum needed to operate a mutual fund efficiently and profitably.