With its new, aggressive municipal bond investing strategy for wealthy investors, BNY Mellon Wealth Management has created a notable exception to its usual conservative approach.
Its Multidimensional Alpha Strategy, a muni bond portfolio introduced in October, was inspired by conditions in the fixed-income market caused by the financial crisis, said John Flahive, the director of BNY Mellon Wealth Management's fixed-income group. BNY Mellon Wealth Management is an asset management arm of Bank of New York Mellon Corp.
"We decided that this would be an excellent time to launch a product," said Mr. Flahive, who is co-managing the portfolio with senior portfolio manager Gary Crofton. "It's for our more aggressive clients."
The managers seek higher tax-free yields and total return than the unit's core strategy affords. In exchange, the portfolio may be more volatile, the company said. The strategy, which is available to high-net-worth clients, has $20 million of assets and has grown 6.5% so far, he said.
Though BNY Mellon is a money manager consciously trying to use the market turmoil to its advantage, Rydex Investments is one that has benefited inadvertently.
Rydex opened its Managed Futures Strategy Fund in the spring of 2007, before the financial crisis began. Investors, frustrated by the unpredictability of stock and bond markets since then, have helped drive the fund's assets past $1 billion, said Edward Egilinsky, managing director of alternative strategies at Rydex.
The fund's assets have more than quadrupled since January thanks to investors' desire for investments uncorrelated to stocks and bonds, he said.
Its H-class shares were up 9% through the middle of last week.
The Rydex portfolio is set up to benefit from rising or falling prices in commodities ranging from energy to metal to currency. The company is known for packaging alternative investments within mutual fund structures; it has a hedged equity fund, an absolute return strategies fund, and a fund of hedge funds in addition to its managed futures fund.
The creation of BNY Mellon's muni bond strategy and the success of Rydex's managed futures fund is not surprising, said Burton Greenwald, an analyst at BJ Greenwald Associates in Philadelphia.
Shell-shocked investors are hungry for "investments that will successfully reverse their fortunes and turn the tide," he said.
Yet a reach for novelty could leave investors disappointed in the long run, he said. Most new kinds of products that grow out of the markets' troubles "are only going to ultimately increase investor angst, not diminish it," he said.
Investment salespeople pushed certain hedge fund-inspired vehicles and commodity-based products to retail customers just as they were about to implode, Mr. Greenwald said.
Mr. Flahive said BNY Mellon's strategy is not a case of short-term opportunism. It has a good decade or two of opportunities to exploit because of how the market has been shaken up, he said. His fixed-income group managed about $24 billion of client assets at Sept. 30.
The strategy, which will use the Lehman Municipal Bond Index as its benchmark, mostly involves positions in investment-grade municipal bonds. The portfolio will differ from BNY Mellon's core muni bond strategy in that it will also invest in instruments of lower credit quality, such as high-yield bonds. The company said it is aiming for $100 million of assets in the first year and will cap the portfolio at $500 million.
As for Rydex's fund, institutional investors have been using a similar approach for decades, Mr. Egilinsky said. "We don't look at it from a short-term perspective."
The fund aims to mirror the daily performance of the Standard & Poor's Diversified Trends Indicator, which tracks 14 sectors and goes long or short based on price momentum, rebalancing each month.