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Bank Mutual Fund Sales Recover in October

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NU Online News Service, Dec. 16, 2003, 5:43 p.m. EST – Bank sales of long-term mutual funds increased in October for the first time in 5 months but were still 11% below year-earlier levels, according to a monthly survey by Kenneth Kehrer Associates, Princeton, N.J.[@@]

Banks sold $2.4 billion worth of mutual funds in October, which is down from $2.7 billion in October 2002 but up 8% from $2.2 billion in September 2003, according to the survey, which is sponsored by Invest Financial Corp., Tampa, Fla.

Bank fund sales have been in a slump. But October sales were up 26% from a recent low of $1.9 billion hit in December 2002, says Invest President Lynn Niedermeier.

Kenneth Kehrer, whose firm conducts the monthly survey, notes that mutual fund sales in banks, savings institutions and credit unions plunged during the second half of 2002 but improved considerably during the first 5 months of 2003.

“However, due to the summer sales slump, bank mutual fund sales were still 25% below the May peak,” Kehrer says.

Niedermeier compares the October figures with data from the Investment Company Institute, Washington, which show that overall U.S. sales of long-term mutual funds were 8.8% higher in October than in September. However, ICI figures also show that, year-to-date, overall U.S. mutual fund sales were 3.3% lower than overall sales for the comparable period in 2002. At banks, year-to-date fund sales were down 17%.

“People who invest where they bank tend to be conservative,” says Kenneth Kehrer, head of the research firm that conducted the study.

The market boom of the late 1990s lured many consumers who had never before bought funds into funds. Then the consumers lost money and retreated, Kehrer says.

“Even experienced investors got burned, so now you’d expect bank customers to be slower to get back in compared to more experienced investors,” says Kehrer.

The strong October recovery allowed mutual funds to regain some of the bank market share they lost to variable annuities over the past year.

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

Banks reported $1.71 in mutual fund sales for every $1 in VA sales in October, compared with $3.75 in mutual fund sales for every dollar in VA sales in October 2002.

Kehrer points out that the figures do not show any ill effect from the recent mutual fund scandals, which involve charges of self-dealing by some fund managers and trading on inside information by certain favored investors.

“It’s hard to tell if they’re being hurt by the scandals,” Kehrer says of banks’ fund sales. “At first blush, it doesn’t look like it. But I don’t know how much more they would have sold if it weren’t for the scandals. People may have taken [assets] out of some funds and put them in others, which of course increases sales.”


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