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Funds Strive to Counter Growing Rivals


Mutual fund companies are working overtime to reverse some investor's disaffection with mutual funds. An increased desire to invest directly in equities has been fostered by the availability of information and trading via the Internet, and the spectacular performance of the technology sector.

"As this bull market has continued, clients are bored with mutual fund holdings," said Henry Zapisek, a certified financial planner in San Diego with Financial Network Investment Corp. of Torrance, Calif.

Because funds' periodic reports are delayed going out to investors, fund investors never really know what their funds actually own, he said. Many of his clients have chosen to divert a small portion of their assets into direct equity investments.

"It gives clients a little more excitement," said Zapisek. "They are more involved in the decision-making of what to buy...and sell."

Mutual fund companies have taken notice of the growing interest in direct investing and some are taking steps to counter the trend.

Alliance Capital Management of New York is bucking the trend towards do-it-yourself investing by airing a new series of TV commercials created by their creative agency, FERRELLCALVILLO Communications of New York. Four 30-second TV ads, called "Investors Behaving Badly" began running Feb. 7. They speak of dangers in do-it-yourself investing.

With their customary dark humor, the Alliance ads suggest that when well-meaning investors go it alone and invest all or almost all of their assets, they may find themselves ruined financially. One ad depicts a son holding a letter and excitedly telling his parents that he has been accepted at and plans to go to medical school.

"Actually you're not," his mother says. "We lost your college fund." The mother goes on to explain that dad had decided to try day-trading on his own.

"I thought it'd be fun," the boy's father says sheepishly. But the mother reassures her stunned son, telling him not to fret.

"You never looked good in white anyway," she says.

Another ad depicts a couple in their 60s power-walking in their neighborhood. The husband admits to the wife that he has blown their retirement money.

"I decided to invest the money by myself," says the husband. "Fresh air, sunshine, what else do we need? Money is highly overrated."

The voiceover in all four ads tells viewers, "Next time don't go it alone. Let your financial advisor tell you about the funds so many financial experts choose."

The ads are fighting back against the promise of easy riches and quick fortunes in the market, said John Carifa, president of Alliance Capital. "Investors Behaving Badly' is our answer to those who would have us believe that fortunes are made overnight with an Internet connection and a few research reports," he said.

Jack Sharry, president of the retail division of Phoenix Investment Partners of Hartford, Conn. does not expect investors to entirely abandon mutual funds. Investors will continue to use funds because they already have their 401(k) plans invested in them, he said. But investors can be seduced by a you-can't-lose market sentiment, he said.

Phoenix has taken a different approach to counter the trend. It is trying to give wealthy investors exactly what they want - something besides just mutual funds.

Many wealthy investors are flocking to separate accounts, said Sharry. Separate accounts allow investors to hire a variety of well-respected investment managers, each to manage a specific sector of an investor's portfolio. Many of these managers are the same ones who simultaneously manage mutual fund assets.

Separate accounts allow investors to get customized money management. Separate accounts also have tax advantages in that, unlike a mutual fund, new investors do not incur the existing capital gains that have been accrued before they buy a fund, said Sharry.

Phoenix has been concentrating much of its efforts over the past year not on selling mutual funds, but on offering brokers and their clients separate accounts, said Sharry. Phoenix is targeting those investors with between $500,000 and $5 million in investable assets. Phoenix' managed account sales during 1999 were double those of 1998 and now represent more than $10 billion in assets under management, he said.