An unexpected uptick in mutual fund sales in the years first two months has prompted many fund companies and brokers to think that the products may finally be pulling out of their more than year-long slump.
Sales of mutual funds in January surpassed the diminished expectations produced in response to weak equity markets and investors recent interest in fixed annuities, said analysts and fund company executives.
"Considering the environment we are in, I am quite encouraged by the numbers we have," said Avi Nachmany, director of research at the New York-based fund research company Strategic Insight Inc.
Data issued Wednesday by the Investment Company Institute, the mutual fund trade group, showed that because of a $7 billion decline in market value, stock mutual funds had net sales of $19.6 billion in January, down more than 20% from the $24.9 billion a year earlier but up sharply from Decembers $2.9 billion.
Other fund classes had net positive sales as well. Hybrid funds had net sales of $2.2 billion, compared with $2.5 billion in January 2001; bond funds had net sales of $9.1 billion, up from $7.7 billion; and tax-exempt bond funds had net sales of $1.4 billion, compared with $1.2 billion.
Fund and brokerage executives at four regional banking companies and a Pittsburgh mutual fund company said the good sales performance had continued through February. Moreover, said executives at the fund subsidiaries of KeyCorp and U.S. Bancorp, the strong sales demonstrate a greater credibility for bank-run funds among advisers and other intermediary salespeople.
Many people inside and outside the industry were particularly surprised at the relatively strong investor interest in equity funds, Nachmany said, because many had thought stock market volatility would discourage investors.
"Markets at least initially did not look that good" in January, Nachmany said. Investors seem cautiously optimistic despite analysts persistent gloom, he said. "Its hard to get that sense [of optimism about equity markets] from what the professionals are saying," he added.
The stock fund result, though down from last year, was encouraging even factoring in Januarys history as a good month for mutual fund sales, said Nachmany.
Data from Glenn Schorr, a research analyst at Deutsche Bank in New York, show that from 1995 through 2001 January mutual fund sales have averaged 17.5% of the annual totals. Last year, January sales accounted for 41% of all the money that funds took in last year, his report said.
Some bank mutual funds and brokers were seeing Januarys gains persisting into February. Clevelands KeyCorp said its mutual fund sales jumped 25% in January, from the year earlier, and that preliminary February data suggested a similar sales pace, according to John Kutz, the managing director of KeyCorps Victory Capital Management.
Solid fund performance and the increasing respectability of bank-run funds in the eyes of intermediary salespeople are helping boost the sales of his Victory Funds, Kutz said.
Part of the growing respect for bank-run funds is evident in the fact that Victory Funds sales outside KeyCorps home markets grew 30% in January, Kutz said. Independent advisers are largely responsible for the boost, he said, because his funds value investing approach is relatively easy to sell in this market.
Greg Baranivsky, vice president and manager, product group at First American Funds, agreed that sales demonstrate enhanced credibility for banks as advisers and fund managers. Sales of the fund family which is owned by Minneapolis-based U.S. Bancorp Asset Management have been best in the bank subsidiarys own branches, however, where First American focuses its sales effort, he said.
Bank brokers also benefit from a larger pool of potential customers the banks depositor base whereas wire house brokers are probably having a hard time attracting new clients in this market, Baranivsky said.
Growing investor interest in 529 plans is also helping some banks, said Keith Floane, senior vice president and mutual fund manager at First Union Securities. Much of the boost in sales that the Richmond, Va., unit of Wachovia Corp. had in January came from 529 plans.
At least one bank broker was skeptical about a long-term upswing in fund sales, however.
Jordan Miller, the director of Fifth Third Securities, said that despite the years early uptick in mutual fund sales new equity programs like separate accounts are big obstacles to any renewed mass interest in mutual funds. "Consultant wrap programs are competing for the same dollar at the high end," he said.
Still, fund sales were "pretty strong" in both January and February at the Cincinnati-based subsidiary of Fifth Third Bancorp, said Miller.
Tim Pillion, the senior vice president, bank marketing and sales at Federated Investors Inc. in Pittsburgh, said bank brokers growing sophistication is helping them sell products and develop long-term relationships with their customers. "Banks are better positioned than they were 18, 24 months ago," he said. "Theyre noting that financial advisers and wire houses are their competitors," rather than other banking companies, he said.
Federated is also profiting so far in 2002. Its sales through bank trusts totaled about $700 million in January, up from $450 million a year earlier, and sales through bank brokerages were similar, he said. This performance appeared to be continuing in February, he added.