After a year of depressed sales, the mutual fund drought may be coming to an end.

That was the view expressed by bankers and fund executives in a round of interviews this week.

These executives said they have seen pockets of improvement since the beginning of the year, particularly with stock funds. And they are guardedly optimistic that better days are ahead.

Indeed, there are signs that consumers are slowly returning to mutual funds. The Investment Company Institute reported last week that investors pumped $3.2 billion of fresh money into mutual funds in January. That was the first net inflow since October. In December, by contrast, investors yanked $2.8 billion out of funds.

The executives interviewed last week attributed the uptick to growing confidence. These sources said investors appear to be cheered by indications that a year-long runup in interest rates may be coming to an end.

Investors even seem to be overcoming their jitters about bond funds, which have experienced heavy withdrawals over the past year. The outflows continued in January, but much more slowly.


First Union

William M. Ennis is the first to admit that First Union Corp.'s mutual fund sales effort has seen better days.

Mr. Ennis, president of the North Carolina company's Evergreen Asset Management Group, said First Union booked $600 million of mutual fund sales last year, down 30% from 1993.

But, he added, he has seen the market "spring back up" since the beginning of the year. Fund sales in January and February were up 220% from December's levels, he said.

And the company has a marketing campaign focusing on its 1994 acquisition of the Evergreen Funds. Mr. Ennis believes Evergreen has the long-term track record and customer recognition needed to attract investments.

He added that the recent bailout of the Mexican peso has prompted many of his customers to drop out of international funds and into growth funds and growth-and-income funds that invest in U.S. companies.

"People have experimented with a lot of exotica. Now they are coming back to more conservative investments," Mr. Ennis said. "What we've had is a flight to quality."


First Chicago

Executives at First Chicago Corp. are less optimistic.

Sales of bond funds grew threefold from December to January, said Richard A. Davies, managing director of First Chicago Investment Management, but were still only half the level of January 1993.

"It's still going to be a tough year for fund sales," Mr. Davies said. "We would do well if we kept up 1994's levels." Mr. Davies said the company's fund sales were a disappointing $150 million last year.

Mr. Davies said the bank is promoting investment products, especially First Chicago's proprietary Prairie Funds, more vigorously.

He said, however, that the biggest competition for assets won't be other banks or mutual fund companies; it will be annuity marketers and the bank's own deposit products.



W. Christopher Maxwell, executive vice president at Cleveland-based Keycorp, echoed Mr. Davies' sentiments, saying, "Fixed-income alternatives like certificates of deposit and annuities are still powerful competitors."

But despite the increased competition, Mr. Maxwell said banks can still drum up interest in mutual funds by packaging funds in "wrap accounts" - diversified portfolios of mutual funds that investment advisers manage in exchange for a fee - or retirement plans.

Indeed, most new fund sales at Keycorp were driven by the bank's 401(k) plan business, Mr. Maxwell said. The Victory Funds, which he oversees, gained some $450 million in 1994, for a total of $4.85 billion of assets under management as of yearend.

Sales this year have been brisk, especially since the stock market rally, he said. Victory Funds equity portfolios have garnered $55 million in sales in the first two months of 1995. In the same period, sales of Keycorp's money market funds and bond funds reached $120 million and $55 million, respectively.



Mutual fund executives, eager to increase distribution through banks, are finding themselves in a double bind. Just as the economy took the wind out of the fund industry's sails, competition for space on banks' product shelves also became brisker.

"Banks are taking a much closer look at their product lines and development," said Maryann Bruce, senior vice president of Oppenheimer Management Corp.'s financial institutions group. "Short lists are back in vogue."

To make itself more attractive, the New York-based fund company is answering broker inquiries faster and boosting overall customer service, she said.

Oppenheimer, which derives 14% of its sales through banks, had a banner year in 1994, racking up total sales of $6.2 billion. But the company has seen sales drop by more than half, down to $650 million in January and February, versus $1.5 billion for same period last year.

Ms. Bruce said she's hopeful that after 1994's rude awakening, "We've hit the bottom and are moving back up."



Kemper Corp.'s sales through banks have slowed in recent months, according to Henry J. Schulthesz, senior vice president and national account manager for financial institutions.

The Oak Park, Ill., fund company reported that sales through banks now account for 14% of its business, down from 18% in 1994.

Mr. Schulthesz couldn't account for the drop, but said he was hopeful the modest gains over the past two months will spur sales higher through banks.

"Last year was a tough year, but we've seen modest gains month over month," he said.

Another good sign is net redemptions, which have slowed at Kemper from $219 million in January to $54 million in February.

"I think it's safe to say that the investor thinks the worst is over and more folks are willing to ride out what's left of the storm," Mr. Schulthesz said.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.