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Portfolio > Mutual Funds

Kehrer: Bank Fund Sales Flatten In September

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NU Online News Service, Nov. 14, 2003, 1:13 p.m. EST – Bank sales of long-term mutual funds fell to $2.2 billion in September, down 15% from the total for September 2002, according to survey results from Kenneth Kehrer Associates, Princeton, N.J.

September’s total was 31% below this year’s high of $3.2 billion, achieved in May.

However, fund sales in banks stabilized in September after falling for three straight months, according to a report on the monthly survey, which is sponsored by Invest Financial Corp., Tampa, Fla.

“Bank mutual fund sales increased for five consecutive months between December and May, when they reached a 12-month high,” says Lynn Niedermeier, president of Invest. “Despite the declines in recent sales activity, August and September levels were still 16% above the December trough.”

Kenneth Kehrer, whose firm conducts the survey, says bank mutual fund sales fell during the second half of 2002 but appeared to have turned around during the first five months of 2003.

Kehrer warns that mutual fund sales may take a further hit from recent charges of fraud against mutual funds. The Securities and Exchange commission and some state officials have charged some funds, including Putnam Investment Management Inc., Boston, with, among other things, favoring a few select investors over smaller clients.

Fund sales in banks “might show a decline in October, particularly since Putnam has been historically the best-selling fund in banks,” says Kehrer. “Whether people are taking their money out of Putnam or pulling out of funds altogether remains to be seen.”

Still, that scandal would have had no effect on September sales, since it did not break until late in October, Kehrer points out. He blames most of the recent sales decline on profit-taking by investors who did not believe the recent market revival would continue.

“The good economic news didn’t happen until November,” he says, referring to improving unemployment and other economic data.

Niedermeier says the recent decline in mutual fund sales in distribution channels such as wire houses and regional securities firms also was interrupted in September. She points to a report from the Investment Company Institute, Washington, which concludes that overall U.S. sales of long-term mutual funds were up 3.4% for the month, after falling in July and August. Overall U.S. mutual fund sales, year-to-date, are still about 3% below the total for the same period last year, ICI says.

In September, mutual funds gained back some of the bank market share they lost to variable annuities over the past year, Kehrer reports.

“Bank customers have been attracted to the extra deposit credits and the safety net features built into the modern VA, which protect against downside risk,” he says. “Consequently, bank customers have been buying an increasing portion of their mutual funds inside variable annuities.”

Kehrer reports that banks sold $3.75 in mutual funds in August 2002 for every $1 of variable annuities sold. That ratio fell all the way down to $1.29 to $1 in August 2003. In September, the ratio rose to $1.38 to $1.


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