Mutual fund industry plans to blow its horn more loudly
Boston — For the last couple of months, US banks and savings-and-loans have had great sport taking potshots at the money market funds. In their advertising, the bankers have been touting their new high-interest accounts and trying to convince people how much more flexibility and - until recently - how much more interest they could get out of their money market deposit and Super NOW accounts.
The mutual fund industry, meanwhile, has kept pretty quiet.
That apparently docile posture, however, may not last much longer. It is time the mutual fund industry ''reemphasized our ability to manage money,'' says George S. Bissell, president and chief executive officer of the Massachusetts Companies Inc., which includes the Keystone Funds. Mr. Bissell is also this year's chairman of the Investment Company Institute, the mutual fund industry's trade group.
The ICI and its member funds, Mr. Bissell said in an interview, are discussing a ''generic'' advertising campaign in which one ad or a series of ads would discuss mutual funds in general without promoting any particular fund company or its products. Now, each fund handles its own advertising, either aiming it directly at the public through print or broadcast ads, or indirectly through information sent to brokers and dealers.
The generic advertising, Mr. Bissell indicated, will stress the industry's steady performance over the years. ''If you look at the figures,'' he said, ''you'll see that performance on average is outstanding. Our industry has done a very fine job of managing equity accounts, bond accounts, and balanced accounts. We've beaten the Standard & Poor's 500, we've beaten the competition in the banks, and we've beaten them badly. I think it's time we started selling it.
On average, he noted, mutual funds have gained 117 percent over five years, while the S&P 500 has gone up about 80 percent. ''Now that is a major spread, something to talk about,'' he said.
The advertising could serve another purpose, Mr. Bissell added, that of overcoming what he sees as misrepresentation in bank advertising. Many mutual funds have complained about what they see as a variety of offenses in bank advertising, most notably the banks' reference to some of their accounts as ''money funds'' or even ''money market funds'' when the bank products do not fit the generally accepted definition of a money fund.
''There have been so many latent distortions in bank advertising we've seen throughout the country,'' Bissell says. ''We're very disturbed about it. We've formally complained to the SEC (Securities and Exchange Commission), with documentation, and I think they've been somewhat concerned.
''More recently, I've seen some comments by various bank regulators who do not seem to be concerned.''
Just because Mr. Bissell dislikes some of the things banks are doing does not mean he wouldn't like to be engaged in some of their other practices. He would, for instance, like to see the funds get into more aspects of the banking business - albeit on a limited basis.
''I would like to be able to take deposits,'' he says, ''and be able to make some loans. But not commercial loans.'' Commercial loans, he explained, could raise possible conflicts of interest if a fund wanted to be an investor in a company in which it was already a lender, or vice versa.
In any case, he argues, ''we want equal treatment. If the banks have the right to get into the business of underwriting mutual funds, which is what they want to do, then I think the mutual fund industry should have the opportunity to get into the banking business. Equal access.''
The current war between the banks and mutual funds centers on those two $2, 500 minimum-deposit accounts approved late last year by the Depository Institutions Deregulation Committee (DIDC). The first account went into effect Dec. 14. A customer is limited to three checks and three transfers a month, and the account pays whatever the bank can afford as long as the balance stays over average interest rate, because of a 12 percent reserve requirement.
So far, Mr. Bissell is pleased with the money market funds' performance against these new accounts. Even though the DIDC accounts grew to more than $200 billion - equal to the money funds' assets - within the first five weeks of their existence, it appears most of this money came from other bank and savings-and-loan accounts.''
We [the money funds] lost about $32 billion in that same period,'' he noted. ''And we estimate that about $20 billion of the $32 billion went over to the new instruments. So, roughly 10 percent of their new money came from money market funds.''
The main reason for this loss, he believes, is that some people are more comfortable having their money covered by the Federal Deposit Insurance Corporation (FDIC). These people are the ones the mutual fund industry refers to as ''savers,'' as distinct from the ''investors'' the funds are most interested in keeping.
''The investors, I think, will go where their money is treated best,'' Mr. Bissell asserted. ''They don't consider the risk of money market funds to be substantial at all. They haven't lost a penny and they feel they're extremely safe.''
His own company's money market fund - American Liquid Trust - had a fairly typical experience after the introduction of the DIDC accounts. It lost about 20 percent of its assets, but only 3 percent of its shareholders, that is, people who closed out their accounts completely. Not all of that 20 percent went to the new accounts, either, he adds. Some of it went to other Keystone mutual funds, and some was withdrawn for ''normal'' reasons such as Christmas shopping and quarterly income tax payments.
The rest of the year, Mr. Bissell believes, looks good for his industry, particularly from an investment point of view.''For 1983, I would be among those that would expect a higher market by the end of the year,'' he says. ''I'm impressed with the fact that we can run up 100 points on the Dow pretty easily these days . . . A move to 1,300 or 1,400 [this year] is extremely acceptable, in my view.
''What we are dealing with now is a probability that the economy is going to improve. It's no longer just a possibility. It's just an argument over degree. There will be segments of the market which, even under a sluggish projected growth rate, are just going extremely well. We will continue to try and identify those areas: telecommunications, computers, and other high-technology areas. These are just very, very impressive. There may also be some recovery industries. The oils, before the end of the year, may start to turn around.''
There are also some clouds in the picture, the fund executive believes, including ''the international financial situation, a possible break in OPEC prices, and heavy unemployment. These are very serious problems. These are the kinds of things that keep us from saying we're a hundred percent sure of a recovery. But we're still 80 percent sure, which is enough for us to make the commitments to these markets that we do.''