Not every mutual fund group might view a takeover by a bank as a harbinger of more aggressive management.
But that notion, which may counter conventional wisdom, could be a credo at Dreyfus Corp., which was bought by Mellon Bank Corp. in 1994.
"Traditionally, Dreyfus had a more cautious approach ... Now we're more in line with the rest of the industry," said Richard B. Hoey, Dreyfus' chief economist and a portfolio manager.
A more aggressive strategy has paid off for the company, which last year dominated bank-managed fund results over one year, with three of the top five equity funds, according to data provided by CDA/Wiesenberger, Rockville, Md. (See tables beginning on page 21.)
In fact, the New York-based fund company's premier growth and income funds were the rated first and second among equity funds for 12-month performance, with returns of 48.63% and 47.33%, respectively. A third Dreyfus fund, the growth and value-emerging leaders fund, delivered a one- year return of 37.40%, ranking it fifth among bank-managed equity funds.
On average, the 369 equity funds managed by banks and thrifts returned 19.67% over one year. The Standard & Poor's 500 returned 22.84% over the same period.
For Dreyfus-a company that gained its reputation on money market funds- the growth and income funds may be a departure.
The company's premier growth and income fund group, which Mr. Hoey manages as one fund and has current assets of $94 million, is small enough to change character quickly.
"It's a relatively small fund, so there's a lot of flexibility," said Mr. Hoey, who joined Dreyfus in 1991. "As the fund has grown, we have diversified more. One of the advantages of all these funds is you have more market liquidity."
Last year, in a bull market Mr. Hoey described as "volatile," the growth-and-income fund included a number of companies whose stock shot up in takeovers, including Crocker Realty Trust Inc. and American Travelers Corp. The fund - a mix of surefire winners and a couple of stocks that demanded timely buying and selling-also included MFS Communication Co., Ethan Allen Interiors Inc., Thiokol Corp., General Nutrition Co., and Teleport Communications.
Mr. Hoey credits chief investment officer Stephen E. Canter with changing the culture at Dreyfus. The asset base has grown by $10 billion, to $80 billion, in less than two years under Mr. Canter.
Being aggressive in a rising market worked last year, Mr. Hoey said.
"It was a great selling year," he said. "You would buy a stock with hopes it would grow by 30% over two years; if it doubles over two months, you sell. A lot of (fund managers) ride through the gain."
With a number of stocks, he said, "I bought below what was fair value. Some I sold at a price that was quite ambitious. I knew what I was doing, but I don't know about the guy who was buying."
For long-range returns, top bank-managed equity funds continued to be paced last year by funds created before they were acquired by banks.
Evergreen, managed by First Union National Bank of North Carolina and Dreyfus funds continued to dominate 10-year returns for bank equity funds, combining to hold six of the top 10 spots, CDA/Wiesenberger reported.