Having tried their hand at managing international stock and bond mutual funds, some banks are taking the trend one step further.
In recent months, a handful of banks have introduced funds that invest in narrow sectors of the global economy.
PNC Bank Corp., LaSalle National Corp., First Union Corp., and State Street Boston Corp. are among the banking companies that have launched international sector funds. These funds invest in particular geoeconomic areas, such as the Pacific Rim, Latin America, and Eastern Europe.
"It's fair to say that foreign stock funds represent a good portion of the bank funds that have come out in the past 12 months," said Jeffrey Kelley, an associate editor at Morningstar Mutual Funds.
At midyear, according to Lipper Analytical Services, Summit, N.J.. U.S. banks managed 66 general international mutual funds, including 15 that are categorized as international specialty funds.
But while some banks are embracing the funds, the phenomenon is unlikely to sweep the banking industry. Managing specialized international funds is primarily a game for big banks with global money-handling expertise.
International funds are difficult and expensive to run, and specialty funds are even trickier, said George Bernard, vice president of PNC Securities, the investment arm of PNC Bank Corp., Pittsburgh.
"A bank that's looking into this has to be very honest with itself before proceeding," Mr. Bernard said.
"For this to work and be profitable, you need assets and you need them quickly," he said.
Banks also need independent research capabilities to make a go of it in international fund management.
While international funds have been a hot commodity in recent years, they are not for all investors.
Emerging markets were running high last year, with some funds bringing in returns of 30%. But PNC waited until the markets cooled for it to launch its International Emerging Markets Fund.
The $64 billion-asset banking company introduced the fund in June, preferring to wait out an expected correction in the markets, rather than risk losmg valued customers from the shock.
"The first people that are going to buy a new fund are going to be your customers," said Mr. Bernard, "And some of these funds were down 30% to 40% earlier this year."
"You can't say to your customers, 'Hey buy this emerging markets fund, it's gonna go to the moon, Alice.'"
Mr. Bernard added that banks should not rush to get on the bandwagon unless it has enough customer interest in international investment and, more important, until it has gathered the right amount of talent to manage the fund.
Gus Fish, a principal at State Street Global Advisors, Boston, agreed. "You're talking about a very large up-front expense," he said.
An outlay of at least $3 million of assets is needed to start up these funds, and a bank may not reach critical mass until it has at least $100 million or more under management, Mr. Fish said.
Experienced global investment managers and advisers are also key to the success of these funds, but they don't come cheap, and neither do the systems needed to track investments abroad.
Part of the reason, according to State Street's Mr. Fish, is that the competition is more evenly matched.
"If you're launching an international fund, you don't need much of a track record," he said. "Not many of these funds have been around for five years, so you don't have to compete against annualized returns."