Nationwide Financial Services Inc. said it plans to develop a family of stand-alone retail mutual funds for distribution through banks and other channels.
"This will allow us to broaden the product suite we can offer the financial advisers we work with," said Michael Butler, vice president of mutual fund strategy for Nationwide Financial.
The plan revolves around the Columbus, Ohio, company's deal, set to close this quarter, to acquire NWD Investment Management Inc.'s retail asset management business from Nationwide Corp. The family will number more than 40 funds, some of which are being acquired as part of the NWD acquisition. A few additional funds will be created from scratch.Nationwide Corp. is a subsidiary of Nationwide Mutual Insurance Co.; NWD Investment Management Inc., formerly Gartmore Global Investments Inc., has $25 billion of mutual fund assets.
In creating the retail mutual fund family, Nationwide wants to capitalize on the popularity of its variable annuity, variable life insurance, and retirement plan products, whose underlying investments are managed by a wide range of firms, including American Century, Fidelity, Oppenheimer, and Dreyfus.
The retail mutual funds would share the concept of using outside investment management companies as subadvisers, Mr. Butler said. Nationwide hopes to differentiate itself from other fund companies in part by using respected subadvisers for all its funds, he said.
He said it also plans to offer some "solution-based offerings" such as target date funds.
With target maturity funds, investors pick a date for their retirement or other long-term goal. The fund's management distributes the fund assets among stocks, bonds, and cash and rebalances the mix over time so that it becomes more conservative.
"One thing we knew in entering this business is that it is a very mature and competitive business," Mr. Butler said. "The world is not looking out there for another mutual fund company."
He predicted that target maturity funds and similar offerings such as target risk funds will appeal to advisers because they are easy to explain to clients and because they allow the adviser to provide a diversified investing solution without assembling a whole portfolio of funds.
Nationwide's strategy for winning shelf space seems promising, said Burt Greenwald, a mutual fund analyst in Philadelphia.
He said the company has enjoyed success with its Best of America variable annuity, one of the first such products whose underlying investment was subadvised.
"They have established strong distribution relationships in the broker-dealer and financial planner communities as well as some in the banks," Mr. Greenwald said. "So depending upon the quality of the products, they'll have a chance get in there."
Nationwide Financial gets 10%-12% of its profits through sales in the bank channel, which it has used since the mid-1990s, a spokeswoman said.
Mr. Butler said, "I'd think particularly inside the bank channel we are excited about the opportunity to offer more packaged products in the mutual fund space."
NWD Investments, which is to be renamed under the Nationwide brand, would advise the retail mutual funds, and their day-to-day portfolio management would be subadvised.
Many of the funds are to be modeled on the approximately 40 that exist within other Nationwide products, and a few more would be created from scratch to complete the lineup, Mr. Butler said.
The funds should start appearing in the second half of the year, a Nationwide spokeswoman said. The acquisition of NWD Investments would pave the way for Nationwide Financial to become the adviser to many investment offerings within its products via subadvised relationships.
"We see competitors such as Hartford and others have entered that business quite successfully," Mr. Butler said.
Taking advisory responsibility in-house would deliver more profit to Nationwide while allowing flexibility to compete on price, he said.
