John Hancock Funds on Acquisition Spree
June 10, 2002
As a result of a 10% decline in assets since the end of 2000, John Hancock Funds of Boston is on the hunt for a few more outside mutual funds or small fund families that it can acquire and merge into its $18.7 billion family of 50 funds. The fund complex is a wholly owned subsidiary of John Hancock Financial Services, which collectively manages $29 billion in open- and closed-end funds, separate accounts and retirement plans.
In particular, Hancock is shopping for an aggressive growth fund as well as either a small-cap or large-cap value fund, said Keith Hartstein, executive vice president of sales and marketing at Hancock. The ideal candidates would have between $3 billion to $4 billion under management, a clean regulatory record and not be embroiled in any proxy battle, he added.
Acquiring funds with good performance, long track records and stable management will allow Hancock to immediately hit the marketing trail rather than having to build funds from the ground up, waiting for their assets to grow and for three-year performance numbers to emerge, Hartstein said.
Last month, Hancock completed the acquisition of the U.S. Global Leaders Growth Fund, a $124 million no-load large-cap growth fund that will continue to be managed by Yaeger, Wood & Marshall of New York, the fund's original advisor, under a sub-advisory agreement. Investors approved the management change in early May.
The six-year-old fund's name has since been changed to John Hancock U.S. Global Leaders Growth Fund, and existing investors, as well as advisers who use the fund for clients, have been grandfathered, allowing them to continue investing without a sales charge, said a Hancock spokesperson.
Assets for John Hancock Financial Services have been falling. At year-end 2000, assets totaled $32.5 billion. By March 2001, assets had dropped to $30.6 billion, and assets as of the end of May now stand at $29 billion.
While the mutual fund group saw a respectable $634 million in mutual fund inflows during the last quarter of 2001, it was met with over $272 million in net redemptions in the first quarter of this year, according to the company's annual reports. For all of 2001 the John Hancock Funds collectively lost more than $1.2 billion in assets, after shedding $467 million in 2000 and $2.5 billion in 1999, according to Financial Research Corp. (FRC) of Boston.
Hancock's acquisition plan comes on the heels of two recent and somewhat disappointing proprietary equity fund launches.
In February, the firm launched the John Hancock Large Cap Spectrum Fund. One-half of the fund's assets are managed internally by Hancock managers under a blended growth and value investment strategy. Another 25% of the fund is sub-advised by Alliance Capital Management of New York under a growth strategy. The remaining 25% is sub-advised by Bernstein Investment Management & Research, the asset management unit of Sanford C. Bernstein of New York, an Alliance subsidiary, using a value strategy.
Hancock launched the large-cap fund expecting to get ahead of the market's eventual reversal back to favoring large-cap stocks. But with the current market continuing to favor high-flying small-cap stocks, the Spectrum fund has failed to attract adviser attention. "The fund bombed," Hartstein said. "The audience yawned." Through April 30, the fund had attracted a mere $25 million, according to FRC.
Out of the gate, Hancock had better success with its John Hancock Growth Trends Fund, which debuted in September 2000. This tri-sector fund invests a third of its assets equally in three sectors - financial services, healthcare and technology - using both internal managers and sub-advisors.
The fund's debut caused a lot of excitement and initially raised $270 million, Hartstein said. The fund was marketed with the presumption that because one of these sectors has always led the other two within the past decade, the fund was positioned to capture the upswing of whichever of the three sectors was currently in the lead.
But an unexpected sector rotation that boosted utility stocks into the winner's circle for the first time in a decade caused this well-intentioned fund to fall from grace with investors, Hartstein said. The fund's performance has declined 14% year-to-date, after falling more than 27% in 2001, according to Morningstar of Chicago. The now $322 million fund has lost nearly 2% of its assets year-to-date through April 30, according to FRC.
A subtler part of Hancock's plan includes shedding its time-honored reputation as a provider of only financial sector funds, Hartstein said. As recently as 1998, the group saw the lion's share of assets flowing into its financial specialty funds.
Indeed, the group's two largest funds still include the John Hancock Regional Bank Fund, with $3 billion in assets, and the John Hancock Financial Industries Fund, with almost $2 billion.