By Linda Koco

Rancho Mirage, Calif.

Right now, value funds seem to be getting more attention from variable annuity insurers than in the past few years.

In interviews at a marketing conference here, several mutual fund executives told NU that insurers have increasingly expressed interest in upping the number of value funds they offer in their VAs. Either that, or they want to gussy up the value funds they already offer (with new subadvisors, sales promotions, etc.).

As one executive put it, “Im hearing more about value products than any other type from the executives who are here” (at the annual marketing conference of National Association for Variable Annuities, Reston, Va.).

“The sense I get is they want to supplement their policies with more value options.”

Why now? For a long time, she said, many VA companies put their focus on offering several growth options, especially large cap growth.

But now that the stock market has become so volatile, “consumers are demanding more diversification.”

Further, “a lot of people are trying to fill the Morningstar style boxes,” she said, so the insurers are looking for funds that will help that along.

When large cap growth funds outperformed large cap value funds by 28% to 29% a couple of years ago, a lot of VA clients were hurt financially, pointed out Peter Fertig, vice president-institutional investment specialist at Zurich Scudder Investments, New York.

But in 2000, value outperformed large cap by about 29%, and by 14% in 2001, he continued, noting he was referring to Russell 2000 figures.

When the rebound in value fund performance occurred, Fertig said, some VAs only had “maybe one value fund. That was not enough, so thats why there is now more interest in adding value funds” to VA portfolios.

Patrick Reinkemeyer, president of the Institutional Investment Consulting Division of Morningstar, Inc., Chicago, agreed that value funds are probably of greater interest to VA providers right now.

“They need them to counter the growth funds in their products,” he said.

Recently, sector funds have drawn the attention of many VA insurers, he noted. But today some sector funds, such as technology funds, may have lost their appeal, he said.

VA providers “have become increasingly concerned about not adding fund options that wont attract sufficient assets to reach critical mass,” Reinkemeyer explained. So, since some tech and Internet funds have not been doing well in recent times, “they are being pulled from the products or at least they are being evaluated.”

But not all sector funds fall into that category, pointed out Theodore E. Charles, chief executive officer of Investors Capital Corp., a Lynnfield, Mass. broker-dealer.

Several other sector funds are still in demand, he noted. “Sector funds are nice to have inside a VA,” he said, “because VA owners can move the money from sector to sector, depending on what interests them or on their asset allocation. And they can do this with less risk of style drift” than when investing in other funds, he added.

Clients are also showing more interest in bond funds than in past years, pointed out Charles.

In addition, a lot of “new money is going into VA fixed options,” he said, “and many investors are showing more interest in asset allocation.”

Reinkemeyer acknowledges the increased interest in adding bond funds. But he wonders where this interest will lead. “I dont think you need many bond funds inside a VA,” he explained. “I think a long term equity focus makes more sense” in a product like a VA, which is designed for long term investing.

At Nationwide Financial, a Columbus, Ohio company that now offers 50 or more funds in some of its VAs, the attention is turning to finding ways to help people make good decisions on those investments, particularly as they reach retirement.

“Were not pushing any products, not even the income annuity,” said Mary A. Ostrom. She is vice president and market manager of the “at-retirement market” unit that is heading up this effort.

“We re looking at what the client wants to do at retirement, and at building tools to help producers work with clients” to achieve those goals, she said.

Most people cant afford to make mistakes at retirement, Ostrom added. “Clients need someone to listen to them–someone who understands the solutions and who can help them pick the right ones.”

One result of this effort is the recent debut of an online “income planner”–a tool that helps Nationwide producers evaluate various income scenarios in the context of the clients own risk profile. Another tool, slated to debut later on, will help make fund selections.

“People need to focus on income distribution from the beginning of their adulthood,” Ostrom contended, explaining that lifestyles have changed so much that people no longer can assume someone will take care of them or their finances.

“People need to work with advisors who have the tools to get them into the right product and fund selections.”


Reproduced from National Underwriter Life & Health/Financial Services Edition, March 18, 2002. Copyright 2002 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.


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