New England Funds is about to engage in a novel experiment which, if successful, will open a new path for selling no-load mutual funds.
New England Funds, based in Boston and an affiliate of Nvest, plans to offer six new funds which essentially are no-load funds in a New England load fund wrapper. The Access Shares, as New England has named the funds, are made up of no-load funds managed by Harris Associates and Loomis, Sayles & Co., two other Nvest affiliates.
Each of the Access Shares funds invests in a single Harris or Loomis Sayles fund. The Access Shares will offer standard class A, B and C shares. New England also plans to use performance track records of the underlying no-load funds -- a marketing advantage for the new products -- according to a prospectus filed with the SEC on Dec. 2.
"If it's successful, I think (Access Shares) would serve as a catalyst to alter the industry landscape," said Andrew Guillette, an analyst at Cerulli Associates, a mutual fund research company in Boston.
Guillette said that a successful sales effort in Access Shares could lead other companies which have both load and no-load affiliates to follow suit.
There is little precedent for selling a fund both no-load and load at the same time, however. In fact, mutual funds and the intermediaries which sell them have not wanted to do so. Companies have believed that once investors realize they can buy the funds themselves directly and at a lower cost, they will abandon the intermediary who recommended the funds and buy direct from the fund company.
Companies which have both load and no-load versions of funds, have usually offered twists in the load funds to distinguish them from the no-loads. For example, the load version of the Young Investor Fund offered by Liberty Financial's Stein Roe & Farnham affiliate, comes with no front end sales charge and a reduced contingent deferred sales charge which disappears after three years.
While there have been rare instances where a company has sold a fund both load and no-load, companies have downplayed the fact that they were doing so. This has been the case with the Young Investor Fund.
Challenging the conventional wisdom that selling both versions of a fund would undermine sales of the loaded version, New England said in a statement that the load, no-load combination was "designed to blur the line between load and no-load fund firms."
"We feel it's a new structure," said Bruce Speca, president and CEO of New England. Reaction from the wirehouses and regional broker/dealers who sell New England funds has ranged from "neutral to positive," he said.
The Oakmark Funds which Harris advises and Loomis Sales products already are offered through broker/dealer wrap programs, said Speca. That fact may help break down resistance among intermediaries.
Mutual fund officials were skeptical about the reception the Access Shares would receive, especially at wirehouses which distribute funds. Several fund industry officials said that Merrill Lynch, for example, has long refused to offer load funds which also are available on a no-load basis. A Merrill Lynch spokesperson was not available for comment.
If the New England plan works, both Harris and Loomis Sales will have found a means of broadening their asset base by having both no-load and load fund investors in their funds, Speca said.
Seventy percent of investors now seek financial advice to help manage their assets, Speca said. Another potential benefit of offering load funds is that investors who buy through intermediaries are thought to be less likely to rapidly buy and sell shares chasing investment performance.
Investors are seeking advice both because of an increase in the size of their portfolios and as they age, says Louis Stanasolovich, a registered investment adviser in Pittsburgh. New England's new products, "open no-load funds up to the general public," he said.
The Access Shares and the no-load funds in which they invest include: Core Equity -- the Oakmark Fund; Small Cap Value -- Oakmark Small Cap Fund; Stock and Bond Fund -- Oakmark Equity and Income Fund; Select Fund -- Oakmark Select Fund; Small Cap Growth Fund -- Loomis Sayles Small Cap Growth Fund; and Total Return Bond Fund -- Loomis Sayles Bond Fund.
Nvest had 17 affiliates with $125 billion in assets under management as of Sept. 30. New England Funds had more than $6.5 billion in assets under management as of Sept. 30.
