Invesco to End Direct Mutual Fund Sales
Invesco Funds Group will become the latest mutual fund company to stop selling its funds directly to investors without a sales charge. Starting in March, new customers will be able to buy its funds only through brokers, advisors and retirement plans, the company said Wednesday.
The direct-sale side of the mutual fund business--commonly referred to as no-load--is shrinking as investors continue turning to professionals for help with their investments.
“There’s a growing trend toward paying for advice,” said Russ Kinnel, director of fund analysis at Chicago-based Morningstar Inc. “It started even before the bear market because so many investors found themselves suddenly with a lot of money. Their portfolios became serious business.”
Industrywide, fund shares sold directly to retail investors accounted for 16% of fund sales in 2000, down from 23% in 1990, according to the Investment Company Institute, the mutual fund industry’s main trade group.
For Denver-based Invesco, the shift also may reflect the dismal performance of many of its funds recently, analysts said. A poor track record can mean a fund company’s offerings aren’t bought by investors so much as they’re sold to investors--by brokers who are paid a commission as an incentive.
“Invesco now has a lineup that’s essentially un-sellable on its own,” said Jonas Max Ferris, editor of Maxfunds.com, a Web site that tracks the fund industry. “Invesco Leisure is their only five-star fund [based on Morningstar’s performance ratings]. They made a lot of bets on a lot of growth stocks, and now they have mediocre track records that they can’t advertise. It’s kind of sad that individual investors chase performance, but that’s the way it is.”
Kinnel said Invesco funds with “miserable” recent performance include Invesco Growth, which through Wednesday was down 49.5% year to date, in part because it made a big bet on the technology sector, and Invesco High Yield, a bond fund that is off 19.2% this year, dragged down by its telecom holdings.
Although many of Invesco’s funds have been hit harder than their peers in the bear market of the last 20 months, Kinnel said, the firm’s sales force will be able to point to a respectable longer-term performance record.
“Invesco has skilled investment pros and some good managers,” he said, noting that Invesco Dynamics, Invesco Financial Services and Invesco Telecom still are among Morningstar’s “analyst picks” in their respective fund categories. And although the firm is known for a “growth” tilt, it has a diversified lineup that includes “value” funds and other products as well, Kinnel said.
Invesco, a subsidiary of Amvescap, will add new A and B share classes next year to 34 stock, bond and money market funds. Class A shares carry an upfront sales charge, or load, while B shares carry a back-end load, paid when an investor cashes out of a fund.
Invesco is the 40th-largest mutual fund provider, with about $24.6billion in assets, according to Lipper Inc. Including its private accounts, the firm has about $34billion under management. Including the funds it sells under the AIM brand name, Amvescap has $142.8billion in fund assets and $361billion in total assets.
Invesco customers who own shares as of March 1, 2002, will be unaffected by the change. After that date, they will still be able to buy no-load shares in any of the 30 Invesco funds that now offer them.
Invesco said the shift is simply a response to customers’ growing desire for advice.
“For some time now, the fastest-growing segment of our business has been the broker-advisor channel, with virtually all our net new flows coming from financial advisors,” said Ray Cunningham, president of Invesco Funds. Indeed, less than 5% of the firm’s sales have been made directly to investors for the last two years, Invesco spokeswoman Laura Parsons said.
Don Cassidy, senior research analyst at Lipper, said investors who buy their mutual funds through professional advisors are less likely to trade in and out of funds rapidly and thus are more desirable customers.
Parsons said Invesco has taken in about $1 billion more in new cash than it has paid out in redemptions this year. Most of that positive cash flow has come from the firm’s stock funds.
Invesco’s move has been in the works for several years, she said. Invesco added C shares, which charge a “level,” or annual load, last year, along with K shares for the 401(k) market, which are priced based on the retirement plan.
Liberty Acorn, American Century , SteinRoe, Scudder and Strong are among the numerous other firms that have shifted some or all of their funds to a load format, though in many cases firms are not charging the upfront fee. Even the few remaining “pure” no-load firms sell some funds through intermediary channels, noted ICI spokesman John Collins.
But the no-load business is here to stay, analysts say.
“There will always be a portion of investors--whether it’s 1 in 3 or 1 in 5--who are do-it-yourselfers,” said Avi Nachmany, an analyst at the investment consulting firm Strategic Insight. “In great times more people will be stepping up, and in difficult times such as this, fewer will be.”
