New York — Nationwide Funds Group, the mutual funds complex of Nationwide Financial Services Inc., is suffering along with other fund companies as the stock market sinks, reports American Banker in its Daily Briefing.
But Mike Spangler, the president of Nationwide Funds, said he sees light at the end of the tunnel thanks to new products and distribution initiatives. Spangler, who took the post in June, said he is focused on plans to "grow our manager-of-managers platform and make it a core competence, and to align our business with our other Nationwide Financial businesses."
Specifically, he wants Nationwide Funds to manage more of the assets within its parent's variable annuities and retirement products, he said.
For most asset managers, looking forward is understandable given the beating they have taken in recent months. Nationwide Funds is no exception. The performance of its long-term funds was down 29% this year through October, according to Morningstar Inc. The Standard & Poor's 500 index was down 33% over the same period.
The weaker performance has taken a chunk out of Nationwide Funds' assets. Average assets this year are $10 billion, down from $14.1 billion in 2007 and $17 billion in 2006, according to Morningstar.
Nationwide Funds manages about $33 million of assets for Nationwide Financial—$21 million in variable annuities and most of the remainder in retirement products. Spangler said he wants to boost those figures, but he declined to give goals, citing the volatile markets.
Already, assets managed for the retirement products and variable annuities have contributed to net positive flows for September and October, and nine out of 10 months this year overall, Spangler said. Money market funds have been a big recipient, gaining $600 million in September and October.
To gain share inside and outside the Nationwide arena, Nationwide Funds will rely in part on newer asset-allocation products such as its Target Destination Funds, launched in August 2007.
"It is no longer about the next outsized return, chasing the next great investment opportunity," Spangler said. "We are really focused on building solutions for clients."
A veteran of Morgan Stanley and Van Kampen Funds Inc., Spangler joined Nationwide as the market's troubles were heating up. His predecessor, John Grady, had left at the end of January for what the company called personal reasons. Grady helped to transfer Nationwide Funds' business model to a subadvised platform.
That effort culminated in October 2007 with a deal to sell 21 mutual funds to Aberdeen Asset Management Inc. of Philadelphia, a unit of Aberdeen Asset Management PLC of Scotland. Aberdeen now subadvises 10 of the funds for Nationwide, according to Spangler. Nationwide Funds' major subadvisers include BlackRock Investment Management, Nationwide Asset Management LLC, JPMorgan Asset Management, Neuberger Berman, AllianceBernstein and American Century Investments.
Nationwide, of Columbus, Ohio, had enjoyed success in using only subadvised funds within its Best of America variable annuity and life investment programs. The fund arm was attempting to duplicate that success by following suit, experts said.
One benefit of a manager-of-managers approach is that it is easier to fire an underperforming subadviser, noted Burt Greenwald, a mutual fund consultant in Philadelphia.
But firms should not necessarily swap managers with poor performance, particularly when larger factors outside their control are at play, he said. "In today's environment, changing horses in midstream may not be the solution."
It's important to consider factors such as whether the subadviser is adhering to the fund's charter and using the investment approach for which it was chosen, Greenwald said.
Asked whether Nationwide Funds plans to replace the subadvisers on any funds, Spangler confirmed that it is "contemplating and planning to make a few changes" on the basis of performance numbers as well as concerns about subadvisers' "investment thesis and process."
Nationwide Funds' distribution focus is not wholly on Nationwide Financial Services, Spangler said. Late last year the company formed a team of five wholesalers who concentrate on external distribution, particularly targeting the retirement and institutional markets, he said. It is still "a nascent effort," he said.
Source: American Banker
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