RiverSource Funds — formerly American Express Funds — ranked as last year’s third-best-performing mutual fund group by one measure and now is waging a battle to improve its image and reverse investor outflows by sometime next year.
BOSTON — RiverSource Funds — formerly American Express Funds — ranked as last year’s third-best-performing mutual fund group by one measure and now is waging a battle to improve its image and reverse investor outflows by sometime next year.
Its adviser, RiverSource Investments LLC, a unit of Ameriprise Financial Inc., is attempting to achieve a turnaround. It’s doing that by adding funds such as asset allocation products and by striving to win back the trust of Ameriprise financial advisers who soured on the old American Express Funds, which changed its name two years ago.
RiverSource Investments also is doing something this year
that never has been done before with the retail funds: selling
them through parties other than
Minneapolis-based Ameriprise, whose broker-dealer has the nation’s third-largest sales force.
In late 2000, American Express Co. scrapped plans to sell its funds through outside advisers to give it time to revamp its systems and some of its funds (InvestmentNews, Dec. 6, 2000).
But the company recently began hiring wholesalers to call on banks and brokerage firms, and it plans to hire 32 by midyear. If all goes well, more will be hired next year, said William F. “Ted” Truscott, Ameriprise’s president of U.S. asset management.
“We are going to go compete in every channel that’s out there: institutional, 401(k) platforms, subadvisory platforms and, very importantly, third-party [retail] distribution,” said Mr. Truscott, who also is chief investment officer at Minneapolis-based RiverSource Investments.
According to Chicago-based Morningstar Inc., eight of RiverSource’s top 10 funds by assets were in the top third of their respective categories for the three-year period ended April 30.
Those results haven’t yet produced inflows, though flows tend to lag performance.
Outflows, however, are slowing at least.
Investors yanked $6.9 billion more from RiverSource’s stock and bond funds last year than they put in, compared with outflows of $9.3 billion in 2005, according to Boston-based Financial Research Corp. American Express Funds became RiverSource Funds in October 2005 to coincide with Ameriprise’s spinoff from American Express.
In this year’s first quarter, redemptions totaled about $1.1 billion.
RiverSource — which has investment offices in Minneapolis, Boston, Cambridge, Mass., Los Angeles and London — also is looking to boost assets through acquisition, Mr. Truscott said. It opened its Boston office in 2002 after it plucked star portfolio managers Bob Ewing and Nick Thakore from Fidelity Investments.
“For those guys to join us was an astoundingly significant move,” Mr. Truscott said, adding that in addition to signaling that American Express could attract top talent, “it sent a signal that there were really good managers out there that wanted more than just a paycheck. They wanted to be a part of changing the model of the way the industry ran.”
Mr. Ewing and Mr. Thakore, who focus on large-cap stocks, said that although they have fond memories of Boston-based Fidelity, they don’t regret leaving.
“We were very excited about what this could be and continue to be excited about what it is now,” Mr. Thakore said.
Independent research is central to their strategy, said the managers, who have assembled a 14-member staff of analysts, many taken from Boston firms including Fidelity and Wellington Management Co. LLP as well as from hedge funds.
Central also is a compensation structure that pays bonuses to portfolio managers, traders and analysts only if a fund is in the top 50% of its peer group, they said.
“If we are below average — first they are going to have to string nets around the building to catch the falling bodies — but second, we don’t make a bonus, and that’s a really important part of our business model,” Mr. Ewing said.
The RiverSource model is getting noticed. The fund group ranked third for performance in last year’s Lipper/Barron’s Fund Families Survey, and Barron’s called RiverSource one of the industry’s “unheralded stars.”
Key to RiverSource’s performance success is its “boutique structure” that creates an entrepreneurial feel by having separate offices staffed with portfolio managers and analysts focused on distinct investment styles, Mr. Truscott said. The compensation structure is the same for all offices, he said.
“There’s no question that 2006 was our best investment performance year ever, but you know quite frankly this is all about consistency. You never want to rest on your laurels,” Mr. Truscott said.
“We just had the best mutual fund sales quarter in several years,” he said, adding that he hopes to see positive flows in 2008.
How long will it take to win back investors?
“That’s the million-dollar question, isn’t it?” said Andrew Gunter, a mutual fund analyst at Morningstar. “The shop has improved a good deal over the last few years as far as the investment personnel and the systems they use.”
Although it still has “a ways to go,” RiverSource has learned from mistakes it made as American Express earlier this decade when managers of many of its stock and bond funds didn’t do enough to guard against unnecessary risk, Mr. Gunter said.
“Somebody who had a bad taste in their mouth from buying one of these funds when they did poorly several years ago, even if they started to come back, that person might not want to go to a RiverSource fund,” he said.
That is why branching into third-party sales makes sense, Mr. Gunter said.
“If they are able to do that, and you combine it with continued above-average returns, people will probably start paying more attention to these,” he said.
Mr. Truscott conceded that RiverSource has had missteps.
“No story is complete without having a few hiccups along the way, but probably the one that comes to mind most readily with our advisers and certainly for me is: We did have a San Diego office,” he said, citing RiverSource New Dimensions Fund, a big fund that saw performance slip.
RiverSource closed that office in 2005. Despite that, Mr. Truscott said that he thinks that advisers recognize that the company is serious about performance.
“At the end of the day, if you sat down with our advisers, they would tell you that we’ve done a very good job of rejuvenating the fund family,” he said.
