Little Fund With an Eye-Catching Bonus

The Blanchard Growth & Income Fund is making an offer that some investors may find hard to resist: a $100 bonus for people who give the little portfolio a try.

The promotion does not come with many strings attached, either. Investors merely need to plunk $3,000 or more into Blanchard Growth & Income and keep it there for a minimum of three months. The offer is reserved for people who have not tried the Blanchard fund before, and it requires that accounts be opened by June 30.

The bonus is payable in additional shares rather than cash. No loads or redemption fees apply on this fund.

While other mutual funds on occasion have lowered their minimum investments, waived fees and even guaranteed returns in an effort to drum up business, the bonus concept appears to be a first.

That it’s being offered now shows how hard it is for new mutual funds to attract investors, even in the middle of an extended bull market.

“The market is so competitive that if you bring out a new fund, people don’t pay attention to it for two or three years,” says Michael Freedman, executive vice president of Signet Financial Services, the brokerage arm of Signet Banking Corp. of Richmond, Va.

Signet owns the Blanchard Group, a small family with $900 million in assets spread among 11 funds.

Blanchard Growth & Income ([800] 829-3863) debuted in November 1994 and counts just $10 million in assets. Its price is not listed in newspapers, and the fund is neither tracked by Morningstar Mutual Funds of Chicago nor the Value Line Mutual Fund Survey, two popular research publications.

As a no-load fund, the Blanchard portfolio cannot count on legions of brokers for marketing help, either. With such a low visibility, it’s not easy to attract shareholders.

“If you have under $25 million in assets, nobody notices or follows you, and you’re not listed in the newspaper,” Freedman says.

But Blanchard Growth & Income has one major ace up its sleeve: an impressive performance record that dates to September 1987, seven years before the fund itself was established.

This oddity can be explained by the fact that the Blanchard fund invests exclusively in another portfolio that compiled the lengthier history, the Chase Growth & Income Portfolio, which is run by a team of stock pickers headed by David Klassen at Chase Manhattan Bank in New York. Because the Blanchard portfolio has no investments other than its stake in Chase Growth & Income, it can piggyback on the older fund’s track record. This is known as a “hub-and-spoke” system.

The Chase portfolio returned an impressive 22.8% a year from its inception through December 1995.

Klassen and company focus on well-known U.S. stocks such as Compaq Computer, DuPont, American Stores and Texas Instruments. The managers pursue a “value” stock-picking style.

Individuals cannot directly buy into the Chase hub fund, but rather must invest through Blanchard Growth & Income or another spoke, the largest of which is the Vista Growth & Income Fund ([800] 648-4782).

Hub-and-spoke funds developed as a way to sell a single underlying portfolio to different categories of investors. Unlike the no-load Blanchard fund, for example, the Vista product is sold through brokers, who charge a commission.

One reason to favor the Vista spoke over its Blanchard rival involves expenses. Vista shareholders pay 1.4% in annual charges. Blanchard investors will pay an estimated 2.6% a year or so unless the portfolio adds substantial assets, which Freedman hopes will happen soon. But the smaller Blanchard fund will probably always carry higher expenses than the Vista spoke, with its better economies of scale.

The Blanchard fund, however, does not impose a sales charge, whereas Vista’s load ranges as high as 4.75%. And, of course, Blanchard offers that $100 bonus.