Investors in Citigroup funds should be smiling

Legg Mason funds outperformed the bank's, Morningstar says

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July 03, 2005|By Steven Syre | Steven Syre,BOSTON GLOBE

Who was the big winner when Citigroup Inc. agreed to sell its giant money management business to Legg Mason Inc. late last month?

Both Citigroup and Legg Mason can make good cases that they came out ahead. But the investors who own funds that have been managed under the Citigroup umbrella are the real winners.

During the past decade, according to Morningstar Inc., 33 percent of mutual funds managed by Citigroup's Smith Barney division posted returns in the top half of their peer group compared with 79 percent managed by Legg Mason.

Big banks and brokerages make mediocre money managers because it isn't what they really do. One way or another, investment operations exist to support or augment some other corporate activity that's more important.

There are plenty of parallels between Citigroup's mutual fund operations and Bank of America's Columbia asset management operations, inherited from FleetBoston Financial Corp. Columbia represents 38 percent of Bank of America's $197 billion in fund assets under management.

Both companies had a few strong performers in their mix. Citigroup's Smith Barney Aggressive Growth and Smith Barney Appreciation funds have been long-term standouts. Among Bank of America's portfolio of funds, Columbia Acorn has turned in strong performances, along with the more obscure Columbia Tax-Exempt fund.

But most of the bigger funds at both companies are fair to middling to even worse when it comes to performance relative to their money-management peers, according to data prepared by Lipper Inc. and Morningstar Inc.

More than half of Citigroup's Smith Barney funds will rank in the bottom half of their categories when you measure five-year performance.

I looked at the relative returns for a dozen of Bank of America's biggest Columbia funds for five years, three years, one year, and this year to date. Other than the very top performers, returns were average or a little worse.

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