Dreyfus Corp., Bank of New York Mellon Financial Corp.'s proprietary fund arm, plans to join the growing list of banking companies offering exchange-traded funds, because they offer an opportunity to gather assets, an executive said.
The New York unit of BNY Mellon Asset Management has partnered with WisdomTree Investments Inc. to launch funds for the international cash and fixed-income markets, the company announced last week.
Phil Maisano, the chief investment strategist at BNY Mellon Asset Management and Dreyfus' chief investment officer, said in an interview that Dreyfus has been in discussions to partner with WisdomTree since before Bank of New York Co. Inc. bought his unit's parent, Mellon Financial Corp. in July.
"We have looked at the ETF market fairly extensively over the last few years but only got serious about 12 months ago," he said. "We were approached by WisdomTree initially to talk about taking on a role as a subadviser."
The new funds, which will be cobranded and marketed by both firms, are the first such products launched by Dreyfus, which had $260 billion of assets under management as of Dec. 31. WisdomTree, which is based in New York, manages 40 exchange-traded funds with $4 billion of assets.
Exchange-traded funds, among the hottest products on the market, are index funds that trade like individual stocks. Last year assets in U.S. exchange-traded funds rose 45%, to $608 billion, according to data from State Street Global Advisors.
Mr. Maisano said Dreyfus has not determined how many such funds it will launch, but he expects to begin selling them within three to six months, pending regulatory approval from the Securities and Exchange Commission.
He said he does not think Dreyfus is late to the game. "Fixed-income ETFs have kind of lagged."
Most providers "started with equity ETFs," he said. "We are not that far behind in terms of launching fixed-income ETFs."
The fixed-income fund market is growing but remains smaller than the equity one. At the end of July there were only 30 fixed-income exchange-traded funds, versus six at the end of 2006. By contrast, at the end of July there were 509 equity exchange-traded funds.
Jonathan Steinberg, WisdomTree's chief executive officer, said in a press release that it partnered with Dreyfus to move into new asset classes.
"We believe there is significant opportunity for ETFs to provide exposure to cash products around the world," he said. "Despite U.S. cash being a $3 trillion market segment, today's U.S. investor is surprisingly limited in their ability to easily hold cash in non-U.S. cash investments."
Bank of New York Mellon will provide accounting and administration services for the new funds. Mr. Maisano said his company has been providing asset servicing for WisdomTree since it launched its first exchange-traded fund in 2006. Bank of New York Mellon also subadvises WisdomTree's stock exchange-traded funds.
Analysts said that because it is entering the market late, Dreyfus will have a difficult time gaining share in an industry dominated by State Street Corp., Barclays Global Investors of San Francisco, and Vanguard Group of Malvern, Pa.
But Mr. Maisano said he is confident Dreyfus can gather assets by partnering with an established player. "They have already built a reputation. That is why we decided to work with them."
