When Stephen Canter isn't directing Dreyfus Corp.'s investments, he might be found paddling a sea kayak.
Like his job, the sport isn't always easy. "I spend most of my time hoping I can stay right-side up rather than right-side down," said Mr. Canter modestly of his kayaking adventures.
Mr. Canter, 52, needn't be so modest about his ambitions at Dreyfus. The New York-based subsidiary of Mellon Bank Corp., Pittsburgh, is firmly on course as a serious contender in stock funds. No one would have believed this three years ago, when its funds were virtually all in bonds and money market instruments.
Now, with an impressive array of new equity funds - many with glowing four-star and five-star Morningstar Inc. ratings - Dreyfus has a good chance of becoming one of the top players in the next few years.
Its share of the market in domestic stock funds - 0.79% in August compared with 0.77% a year earlier - looks small but actually places Dreyfus at No. 21 in a universe of 548 fund companies, according to Financial Research Corp., Boston. "They're going to move up," said one of its analysts, David Haywood.
Equity assets now stand at $22 billion, or 23% of total Dreyfus assets, nearly three times the size of its stock assets at the end of 1993, when they represented just 10% of the total.
Dreyfus domestic stock assets grew 48% in the 12 months through August. By 2000, Mr. Canter wants at least half his assets in stocks.
Dreyfus, acquired by Mellon in August 1994, may have a long way to go before approaching industry giants like Fidelity Investments and Vanguard Group. Together, the two hold nearly one-third of the market in U.S. stock funds.
But those kinds of numbers drop off quickly soon afterward in the rankings. American Funds, which ranks third behind Vanguard with 7.68% of the market, is followed by Putnam Financial Services with 4.87% and AIM with 2.59%. Mr. Canter said he'd be happy personally with a share of 1.5% to 2%; the firm does not have a formal target.
What matters most to him now is building a strong-enough foundation on which to further build Dreyfus' equities business. Said Mr. Haywood: "Just looking at its market share you don't really see it but it seems like they're doing all the right things."
Those "right" things include the following:
A broad selection of stock funds offered through Dreyfus' widened distribution channels (customers also have access to non-Dreyfus funds) as well as through all the major fund supermarkets.
A big advertising campaign that focuses heavily on Dreyfus' equity products touting their strong performance;
The recently introduced Lion Account, named after the Dreyfus logo, featuring the one-stop shopping concept for financial services.
One big growth area for Dreyfus will be the retirement business. Thanks to Mellon's July acquisition of pension benefits specialist Buck Consultants Inc., Dreyfus will be able to tap into an even wider client base in this exploding field.
Other moves include hiring more than 25 mid- to senior-level investment professionals in the last two years, some from the likes of Fidelity. Six out of the eights heads of investment units are new. Said Mr. Canter: "That gives a pretty powerful measure of the change, and we think a very positive change, that has occurred here."
There's one big problem: the new-and-improved Dreyfus has yet to be fully embraced by the investor population.
Said Geoff Bobroff, a mutual fund consultant in East Greenwich, R.I.: "There may still be a market perception that Dreyfus is more of a stodgy, sedate fixed-income house and doesn't really have the ability to manage aggressive equity. Plus, they don't have a long-term record and this hurts them in competing with the long-term houses."
Dreyfus' association with a bank may lend to a stodgy image, analysts said. Mr. Canter argues that, to the contrary, fitting in with Mellon gives Dreyfus an edge.
"What you have is a money management powerhouse," said Mr. Canter. Dreyfus portfolio managers typically are chosen for their experience in institutional money management, a heavy focus throughout Mellon's boutiques. Because of that consistency, Dreyfus can also draw on Mellon's money management talent.
At the onset of the merger, Mellon's executive management is said to have pushed for a low-risk product line, even in fixed income. But since then, the parent company has "loosened up a bit," said Dennis Gallant, a consultant at Cerulli Associates in Boston.
Mr. Canter insists that Dreyfus, like Mellon's other money management units, retains enough autonomy to be able to sell riskier types of funds than it traditionally did, including growth equity funds and junk-bond offerings.
Taking on more risk is not what's going to make or break Dreyfus. "I don't think you have to do unusual things from a risk standpoint to attract attention in marketplace," said Mr. Canter. "You need very high quality products that offer investors a complete range of what they need to meet their investment objectives."
Dreyfus' menu has five categories: small-capitalization, value, growth, growth-and-income and international. There are index funds, with more on the way. Mr. Canter also is working on new offerings that will feature tax efficiency, and even a few sector funds - technology one of them.
So far, his strategy has worked, as evidenced by the strong performance and asset growth of many of his new funds. Take the $310 million Dreyfus Small Company Value Fund. Most of its asset growth has occurred in the last year; the firm in late September said it will close the fund when it hits $500 million.
That fund has consistently beat its peer group for the year-to-date, and one- and three-year periods with 32.63%, 48.58% and 32.87% returns as of September 12. Its category averages for the same periods: 27.74%, 38.67% and 23.09%.
Analysts believe that for Dreyfus to claw its way to the top will require the purchase of other small fund houses with proven track records in stocks.
Founders Asset Management, the Denver company rumored to be targeted by Mellon, would be a perfect fit, as long as its fund managers stay on, analysts said. Mr. Canter won't comment on that one but won't rule out other similar acquisitions down the road.
