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March 17, 2002 at 07:00 PM
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.
