Personal Business: Smart Money
TAKING STOCK OF BANK MUTUAL FUNDS
After years of being bombarded with ads, most people know the names of the big mutual-fund houses: Dreyfus, Fidelity, Vanguard, and so on. Less familiar are the growing ranks of bank "house-brand" funds. More than 100 banks now hold $157 billion in 851 proprietary funds. With many banks aggressively marketing their funds, how do they stack up against the more established nonbank players?
Bank funds tend to cluster around the median of performance for fund categories, says Geoffrey Bobroff of Lipper Analytical Services. Banks may operate with "more of a trust-department philosophy of managing money rather than hitting home runs or a 'shoot the lights out' concept," he says
There are some notable and aggressive standouts, however. In a list of the 25 best-performing equity funds for the five-year period ending Sept. 30, Chase Manhattan's $136 million Vista Growth & Income Fund held the top spot, with a 29.7% average annual return. The $37 million Vista Capital Growth Fund grabbed second place, averaging about 23.4% a year. Bank of America's Pacific Horizon Aggressive Growth Fund is another star, up 62.5% over five years, compared with the 39.90% average for all such mutual funds.
Most banks sell their own funds alongside those of traditional fund providers. If such funds have a load, they cost no more to buy in a bank than from a broker or the sponsor. But if the fund is no-load, a bank may take a transaction fee and a small percentage of assets. Buying from the sponsor is cheaper.
CONVENIENT. While loads are trending down or being eliminated by the traditional fund families, few banks offer no-load funds. Loads on bank funds are usually 4% to 5%. Among the few bank no-load fund families are the Laurel Fund family offered by Mellon Bank and Fleet Financial's Galaxy Funds.
Banks use convenience as a selling point. Citibank links its $2.7 billion family of Landmark funds to other accounts, so customers can buy, sell, or exchange funds through Citi's automatic-teller machines. At Chase, money in a Vista fund counts toward the balance required for waived fees on checking accounts.
However convenient, most bank funds lack a track record. While banks may capitalize on a reputation for trust, their funds aren't covered by deposit insurance and should be approached like any fairly new investment option--with healthy caution.Suzanne Woolley Edited by Amy Dunkin