LOS ANGELES -- Metropolitan West Asset Management introduced its first institutional mutual fund share classes -- for its low-duration and total-return funds --in an attempt to make the small money management firm more attractive to defined contribution plan sponsors.
Two weeks ago Morningstar Inc., Chicago, gave the three-year-old bond funds its top rating. Lipper Analytical Services Inc., New York, has ranked the low-duration fund third out of a class of 112 similar funds for the year ended March 31, and the total return fund 13th in a class of 284 funds for the same time period.
"Our focus is to provide a more cost-effective choice to those clients willing to accept a mutual fund," said A. Chris Scibelli, director of marketing. "We had to come up with a share class that closely resembled an institutional account."
The new share classes for Metropolitan West Asset Management's Low Duration Bond and Total Return Bond funds have investment minimums of $3 million and are geared toward institutional investors that aren't able to meet the $25 million minimum attached to separately managed accounts, Mr. Scibelli said.
The share classes will have expense ratios of 0.39% for the low-duration fund and 0.44% for the total-return fund, he said.
"(The Morningstar rating) makes us a little more attractive to potential defined contribution clients," Mr. Scibelli said. "Our firm is starting to become more attractive to the defined contribution marketplace."
However, the money management firm has no plans to make itself a bundled service provider or to delve into the defined contribution record-keeping business, he said.
The low-duration fund has $360 million in net assets and the total-return fund -- an interim fund -- has $280 million in net assets, he said.
Executives say there is a lot of opportunity in the defined contribution market. Close to 58% of defined contribution plans in 1998 offered actively managed domestic bond funds to participants, up from 55% the year before, according to a 1999 survey by the Profit Sharing/401(k) Council of America, Chicago. At the same time, 39% of plan sponsors offered 10 or more fund options for participant contributions in 1998, up from 31% of companies in 1997, the survey indicated.
And so far, fund managers have been satisfied with the funds' returns. The total-return fund outperformed its Lehman Brothers Aggregate index benchmark by 1.51% for the year ended March 31, and by 1.86% since its launch in March 1997. The low-duration fund outperformed its Merrill Lynch 1-3 Year U.S. Treasury index benchmark by 2.48% for the year ending March 31 and by 1.38% since its launch three years ago.
The strategies for both share classes is the same, Mr. Scibelli said, adding that "nothing is changing except for the expenses."