The Hartford's makeover centers on mutual fund push

Oct 21, 2012 @ 12:01 am

By Darla Mercado

Fresh from dropping its annuity and life insurance product lines, The Hartford Financial Services Group Inc. is sharpening its mutual fund pitch to broker-dealers.

The massive insurance company is undergoing a makeover, this time as a property-casualty insurer that also offers mutual funds and employee benefits.

Although the company historically has offered those three product lines and more, many reps at independent broker-dealers know it best for having pioneered the variable annuity guaranteed-minimum-withdrawal benefit that made it a top seller in pre-crisis days.

Under its leaner structure and new focus, The Hartford expects to woo distributors with its mutual funds lineup. The insurer spent the first six months of the year transferring its fixed-income offerings to Wellington Management Co. LLP from its own in-house management at Hartford Investment Management Co. This year, The Hartford also boosted its marketing ranks by adding 25 wholesalers, both internal and external, for a total of about 190.

“Many distributors are continuing to sell our mutual fund products with enthusiasm,” said chairman and chief executive Liam McGee.

“We believe our relationships with broker-dealers and distribution partners are quite good,” he said. “We expect [mutual funds] to be a high-growth business for Hartford and our partner Wellington, as well.”

DARKEST HOURS

But now that The Hartford is building out its mutual fund operations, will the representatives come? The company is expanding that side of the business at a time when exchange-traded funds, particularly those from The Vanguard Group Inc., are attracting attention for their low costs.

Further, mutual fund giants such as American Funds, Fidelity Investments and Pacific Investment Management Co. LLC are household names among investors and financial advisers, and garner the most assets. Finally, advisers remember The Hartford's darkest hours during the crisis when it participated in the Troubled Asset Relief Program in 2009 and backed away from its once-lucrative variable annuities business.

“To some extent, there's a certain black cloud that comes with the Hartford name, and it makes me less excited to dig into the details of their fund management, especially if I feel like I have it covered by another asset manager that's doing a good job,” said Kevin Distad, an adviser with Counsel Wealth Management Inc.

Whether The Hartford makes a successful go with advisers will de-pend largely on the funds' performance.

“Their ability to get fund flows and leverage fees is a function of the performance for Hartford's funds,” said Randy Binner, an analyst at FBR Capital Markets & Co.

In fact, a number of the company's equity funds are top performers.

As of last Thursday, the Hartford Dividend and Growth Fund (IHGIX), which is subadvised by Wellington, had a one-year return of 19.68%, a three-year return of 10.37% and a five-year return of 1.22%. That compares with returns of 20.59%, 10.17% and -0.5%, respectively, for the average large-cap value fund tracked by Morningstar.

There is also the Equity Income Fund (HQIAX), another large-cap value fund, which features one-, three- and five-year returns of 23%, 12.9% and 2.93%.

However, in the past two years, the fund group has suffered from net outflows as investors have exited equities, said Katie Reichart, a fund analyst with Morningstar Inc.

Last year, The Hartford had net outflows of $10.7 billion, a big spike from 2010's net outflows of $2.47 billion, according to Morningstar.

Those data represent open-end-fund assets and flows only.

$7B IN OUTFLOWS

Year-to-date through Sept. 30, Hartford had suffered about $7 billion in outflows, Ms. Reichart said.

“It's a general flight away from equities,” she said. “Other firms that might have a heavier fixed-income focus are bucking that trend.”

The Hartford has accentuated its fixed-income offerings over the course of the year, with the shift to Wellington only part of the story.

Jim Davey, president of The Hartford's mutual funds business, cited new and upcoming releases, including its World Bond Fund (HWDAX), which attracted $107 million in net flows last year, when it was launched.

“The fund is designed to protect capital even during periods of market stress, and it's a very important concept to have low to no correlation to equities,” he said. “Through the last five to six years, that hasn't been the case with a lot of fixed- income [funds].”

WELLINGTON RELATIONSHIP

On the distribution side, broker-dealers and advisers are already hearing from The Hartford's mutual funds wholesaling force. Thus far, what they are interested in is the relationship with Wellington, at least from a research point of view.

“I know the national accounts team at Hartford is making a more concerted effort toward reaching out to gatekeepers like me,” said Peter Greenberger, director of mutual fund research at Raymond James & Associates Inc.

“We reach out to talk about strategies,” he said. “From where I sit, the research [from Wellington] is an attractive component of what they're selling.”

Advisers are open to The Hartford's new product role but say that they need time to determine whether the insurer will play a big role in their product roster.

“In terms of track records, with Wellington, they have the performance,” said Joe DeDomenico of DeDomenico Wealth Management LLC, an adviser affiliated with Commonwealth Financial Network. “But we have to give Hartford a little more time with their initiative.”

dmercado@investmentnews.com Twitter: @darla_mercado

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