In the mutual fund business, small banks don't necessarily deliver small returns to investors.
One Valley Bancorp of Charleston, W. Va., is pulling in strong returns through its small family of proprietary mutual funds. In the second quarter, its equity funds were ranked in the top quartile of bank-run funds with the same investment objective.
But the $3.6 billion-asset banking company - West Virginia's largest independent bank - isn't hinging the success of its investment products program on performance alone. The bank has launched a broker-dealer unit and will begin a new marketing blitz this fall, to woo customers from its big-bank competitors.
The objective goes beyond selling funds, says John L. Jividen, One Valley's investment product manager. "We're more interested in building relationships that we can expand."
Even so, it doesn't hurt to have strong-performing funds. One Valley's OVB Emerging Growth Fund pulled in total returns of 25%, in the past six months, and 30% in the last year, according to CDA/Wiesenberger. The Rockville, Md.-based research company noted that OVB Capital Appreciation Fund had total returns of 19% and 27%, respectively, during the same periods.
David P. Nolan, a vice president and portfolio manager for One Valley, said he boosted performance by hoarding technology stock issues, which have been on the rise for the past year.
The small-cap OVB Emerging Growth Fund invested nearly 50% of its assets in semiconductor, software, and technology hardware companies, in recent months. Among the more high-profile holdings were Frame Technology Corp. and U.S. Robotics Corp. Similarly, the OVB Capital Appreciation Fund has held stock in Microsoft Corp. and Motorola Inc.
Mr. Nolan insists that smaller funds - the OVB Funds manage $339 million of assets - can perform as well as, if not better than, their larger competitors. He said his portfolios have more legroom to take ambitious positions in the markets.
"Behemoths like Fidelity's Magellan Fund have no flexibility and have to blanket sectors," Mr. Nolan said. "We can liquidate a sector in one day if the market takes a downturn. If the worm turns, it could take a Fidelity weeks to liquidate."
But One Valley faces competition from out-of-state banks in the region that have their own mutual fund programs. Among them are banking giants like Banc One Corp. and Huntington Bancshares, two Columbus, Ohio-based banking companies that dominate large portions of the market in West Virginia.
Avi Nachmany, an analyst for New York-based Strategic Insight, said that while it can be easier to churn out better performance with more assets under management, it's not essential.
"The investment business is fundamentally entrepreneurial, and good performance is intellectual exercise," Mr. Nachmany said. One Valley "has done a good job of riding out the markets."
One Valley launched its proprietary fund family December 1993, with $178 million from converted trust assets.
The OVB Funds are sold through a 25-branch network by 38 dedicated investment sales representatives. The funds don't carry a sales charge, but instead depend on management fees to cover the costs of running the fund complex.