This year is shaping up as one of the worst in recent memory for sales of bank-managed mutual funds.
These funds attracted a scant $5.6 billion in the first nine months of the year, according to Strategic Insight, a New York-based fund researcher.
That's a dismal showing compared with the record $51 billion inflow for all of 1993, and the poorest showing since 1988, when banks pulled in only $4.9 billion of new cash in the first nine months, according to Strategic Insight.
The reversal largely reflects conditions in the mutual fund industry as a whole. While money continues to pour into equity funds, bond funds have lost assets ever since the Federal Reserve began ratcheting up interest rates in February.
"What I see as the bank experience this year is generally positive, given the general market conditions," said Avi Nachmany, an analyst with Strategic Insight.
He said much of the dropoff in bank funds is attributable to rising interest rates, which have hurt yields on the bond funds and money funds that have been popular with bank customers.
Additionally, banks are converting fewer trust assets into mutual funds than in previous years.
Strategic Insight's figures reflect net new sales; that is, fresh investments in mutual funds, excluding redemptions, reinvested dividends, and gains or losses in portfolio holdings.
Banks with a strong emphasis on money market and bond funds took the hardest falls.
In all, bank-managed taxable money market portfolios reported outflows of $10 billion in the first nine months of 1994. BankAmerica Corp., Mellon Bank Corp., and PNC Bank Corp., posted the sharpest outflows, with each suffering net redemptions of billions of dollars.
Banks that emphasize equity funds fared better. These funds raked in net new sales of $12 billion through September, according to Strategic Insight.
Trust conversions, while down from previous years, nevertheless were a significant factor in net new sales for some banks.
Among the biggest trust conversions this year was that executed by Detroit-based Comerica Bank. All of its net new sales of $1.3 billion through the end of September came from this, according to a company spokeswoman.
Trust conversions also accounted for most of Chicago-based Northern Trust Co.'s gain of $1.2 billion.
While the conversions, may make banks' funds easier to market, they do little to generate extra fees, since banks would have collected a fee for managing the trust accounts anyway.
But some banks have distinguished themselves this year by bringing in new assets. Among them is Banc One Corp., Columbus, Ohio, which posted the biggest sales gains of through September of any banking companies.
About two-thirds of its net new sales of $1.9 billion came from institutional investors that Banc One convinced to switch from money market funds managed by other companies to Banc One's own money market portfolios, said Eric Rubin, managing director of mutual funds for Banc One's Investment Advisors unit.
Banc One has had good performance in these funds, and so has not lost assets like some other fund managers have, Mr. Rubin added.
But the problem with such sales is that institutional money market funds pay notoriously slim fees. As a result, host major fund mangers emphasize long-term bond and equity funds, which deliver fatter fees. On that front, Chase Manhattan Corp. has had a particularly strong year. About three quarters of its net new sales through September of $1.2 billion were in its highly rated Vista Growth and Income and Capital Growth equity portfolios.
Significantly, this money did not come from converted trust assets, according to senior officials.
Among the losers of assets, the main culprit has been the defection of institutional investors from money market funds. When interest rates rose, many institutional investors chased higher yields from short-term securities.
Nearly all of BankAmerica's net redemptions of $10.2 billion can be attributed to this. The redemptions, along with losses on derivatives, forced the banking company to inject $67.9 million into two money market portfolios earlier this year.
For Mellon Bank, the net loss of $6.9 billion in the first three quarters is ill-timed, coming right as the company-completed its acquisition of Dreyfus Corp. in August. The redemptions came from both companies' funds, which, combined, have about 90% of their assets in bond and money market funds.
But while the redemptions have spawned criticism that the Dreyfus deal may have been too expensive, Mellon vice chairman Steven G. Elliott said this wasn't the case.
"What you're seeing is what's happened every cycle," he said.
He explained that Mellon officials anticipated some siphoning off of assets. Long term, the deal will pay dividends and the bond investors will return, he added.
Meanwhile, the company is beefing up its equity portfolios, using the strong equity investing expertise that Mellon and its Boston Co. unit have in-house.
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