As relative newcomers to the mutual fund business, banks get a lot of flak.

Any bank can start a mutual fund, the argument goes. But can it get the kind of performance that attracts new investors?

A study of seasoned bank proprietary funds -- those with track records of at least five years -- suggests that banks are getting some respectable results.

In four key categories -- equity, taxable fixed-income, tax-exempt fixed-income, and balanced funds -- bank funds scored a fraction above or below industry averages for performance. Money market mutual funds were not covered in the study, which was performed for the American Banker by its affiliate, CDA/Wiesenberger.

Common Misperception

That record defies what bankers say is a commonly held view that banks can't manage mutual funds well.

Few banks can yet boast such long records. Only 26 of 103 banks whose funds are tracked by CDA/Wiesenberger have managed funds for at least five years.

The ranking showed that 83 bank proprietary funds, out of 559 tracked by CDA/Wiesenberger, have been around for at least five years. These seasoned bank funds were ranked in order of total return for the five-year period ended July 31.

Though seasoned funds are still a rarity in the banking industry, their ranks are growing fast. Three years ago, only 14 bank funds would have had five-year records, according to CDA/Wiesenberger.

Long-term returns are important because investors typically give considerable weight to five-year track records when they choose mutual funds. Thus, the findings are good news to bankers trying to convince customers of their investment expertise.

Bankers didn't fare as well in short-term performance. In year-to-date returns on equity funds, the average total return on bank-managed funds was 12.05% -- well short of the 15.7% return posted by all equity funds over the same period.

Low-Risk Strategy

One explanation for this subpar performance is that banks continue to make conservative stock picks to serve customers who are largely averse to risk, said Richard Tierney, who compiled the information Rockville, Md.-based CDA/Wiesenberger.

As bank customers become more accustomed to the risks of investments, Mr. Tierney expects that bank funds will become closer to the industry in short-term returns.

"I would say that most investors going into mutual funds should be looking for the longer term," Mr. Tierney said.

Many industry officials point out that banks will find it easier to compete with mutual fund companies when they have earned long track records.

Several of the banks that made the list have racked up impressive returns over five years.

In the equity category, Chase Manhattan earned the top two spots as ranked by five-year return. The much-touted Vista Growth and Income Fund returned 25.11% over five years, compared with the bank average of 12.9%. It returned 22.18% over three years, and 17.06% over one year.

Second by a hair was Vista Capital Growth, which racked up 24.97% over five years.

Chase also took top honors in the tax-exempt fixed-income ranking. Its Vista Tax Free Income Fund returned 11.9% over five years, compared with the bank average of 9.4%.

First Interstate Bancorp's Westcore Long-Term Bond Fund took first place in the taxable fixed-income category with a 13.29% return over five years. For all seasoned bank funds, the five-year return averaged 10.22%. The fund returned 14.9% over three years and 16.26% over one year.

Among balanced funds -- those that hold stocks and bonds in a strategy to provide higher returns with lower risk -- Wells Fargo's Stagecoach Asset Allocation Fund took top honors. It scored an 11.95% return over five years, compared with the bank average of 11.35%. It returned 13.25% over three years and 13.79% over one year.

Society Corp.'s CIRF-Balanced Fund placed second, with a 11.52% return over five years, followed by Bank of America's Seafirst Asset Allocation with 11.38%.

Poor Record in '70s

CDA compiled a similar study in February for the American Bankers Association. At that time, the chairman of the ABA's asset management committee said the results would help dispel the myth that banks are poor money managers.

That label was earned back in the 1970s when bank funds performed dismally.

While only a few banks have earned five-year track records for their funds, one has hit the 10-year milestone. United Missouri Bank manages two UMB funds that were launched in November 1982.

Many mutual fund companies have funds that can boast that kind of longevity. But it will be years before banks can make the same claim.

Mr. Tierney said that long track records give banks extra credibility in the fund business: They can show they have staying power to ride out the ups and downs of the investment cycle.

In the equity category, UMB Stock Fund, which has a long-term growth objective, returned 11.3% over 10 years. That was right in line with the average for all funds at 11.34%.

The UMB Bond Fund, under the fixed-income category, returned 9.9% over 10 years. That was below the average for all funds of 11.05%.

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