Hoping to capture a larger portion of the bank customer mutual fund market, Dreyfus Corp. will introduce as many as 12 insured, single-state municipal bond funds.
The funds are also a response by Dreyfus to the personal income tax increases recently enacted by the Clinton administration, said Elie M. Genadry, president of Dreyfus' institutional service division.
Bank clients have been identified as a largely untapped outlet for mutual fund products. This is in part because fund executives have speculated that higher tax rates would send bank customers scrambling for tax-exempt investment alternatives.
Since the beginning of the year, many mutual fund companies have been focusing their efforts on luring bank customers to their products. Meanwhile, banks have expanded their proprietary mutual fund offerings, working to retain customers miffed at declining certificate of deposit returns.
"The Clinton tax bill is the main impetus for these new funds, and the market is expanding," Genadry said. The picture is getting bigger as more and more people become knowledgeable about mutual funds. Whoever can build a relationship with the buyer will get the business."
Dreyfus will market the mutual funds under the Premier fund family name. The funds, which will carry a sales charge, or load, will be available only through banks, broker/dealers, and financial planners. Funds that Dreyfus markets directly to retail investors do not carry a load or sales charge, Genadry said.
Dreyfus inaugurated the first of the insured funds last week by introducing a long-term California bond fund. It marks the first insured municipal bond fund offered through Dreyfus' Premier family. The company expects to introduce the rest of the insured funds by the end of the year.
Genadry said he anticipates the insured funds will be launched primarily in states where Dreyfus already has successful mutual funds. The states could include New York. New Jersey, Florida, Pennsylvania, and Ohio. Genadry said. Another key factor in determining where the funds will be launched is the availability of insured bonds and the type of yields on the securities, he said.
Dreyfus now offers two no-load insured municipal funds directly to investors: a national bond fund and a New York bond fund.
"These are brand new, funds," Genadry said. "This [bank] market is hot. We believe in it, and we need to increase our product availability."
Like other mutual fund companies, such as Liberty Financial Cos., Dreyfus believes that insured tax-exempt mutual funds are more compatible with the conservative investment objectives of many bank customers.
Last year, Liberty Financial Funds; began offering its Liberty Insured Municipals Fund to bank customers. Originally, the fund had been marketed directly to investors by a Liberty Financial subsidiary, Stein Roe & Farnham, as a no-load product. Sales were slow on the Stein Roe & Farnham product, so it was transferred into the bank product line because customers there had expressed interest in an insured product, Liberty executives said.
Currently, Dreyfus Premier funds are available directly through about 400 banks. Also, the funds are sold through third-party vendors such as INVEST Financial Corp. and Liberty, Financial.
Via banks, Dreyfus logged $4.2 billion in total sales of tax-exempt mutual funds as of June 30, Genadry said. In addition, about one-third of Dreyfus municipal fund sales occurs through banks, broker/dealers, and financial planners, the executive said. Dreyfus is anticipating that the introduction of the insured municipal funds will help it double sales through bank outlets. which would equal this year's gain in sales through banks
While some other mutual fund companies have sought to lure bank customers with unit investment trusts and closed-end funds, Dreyfus believes that actively managed, open-end funds are a better value.
"In a municipal environment. you're better off in an actively managed fund" because portfolio managers can position themselves in response to market changes, Genadry said.
Genadry said he expects the minimum investment in the insured funds to be about $1.000.
