PITTSBURGH - Federated Securities Corp. has seized on a clever way to market new mutual funds. It preaches to the converted.
In launching its newest series of four asset allocation funds, the Managed Series Trust, instead of putting its own money into the funds, the firm pre-sold the funds to existing clients.
"They helped us seed the funds to properly diversify them from day one," said Mark Gensheimer, executive vice president.
"We learned a lot from this. Before, we just seeded it ourselves and sold it afterward."
Pre-selling is not a common tactic in the mutual fund industry. "I hadn't seen any of our competitors do this. Institutionally, it's easier. You have a smaller customer base to go to get a larger amount of institutions."
On the first day, May 25, the funds attracted more than $70 million from 57 bank trust departments. Firm officials went to 12 different cities over four to five weeks. Clients of more than 100 trust banks including Tokai Bank and Sunflower Bank invested in the funds.
Federated has been marketing mutual funds to bank trust departments since 1974.
"We're always developing narrowly defined products."
In the early years, the firm tried "to fill all different niches for the fixed income yield curve," said Mr. Gensheimer.
Gradually, the firm moved in the direction of asset allocation among stocks as well as bonds.
"Seven to eight years ago we started working on building asset allocation programs using our (five or six) funds. A year or two ago, banks said 'couldn't you put together actual funds for us?'"
Federated did just that with the Managed Series Trust. The four funds include an income fund; a growth and income fund; a growth fund and an aggressive growth fund.
Henry Gailliot, chief strategist, makes the asset allocation calls for the funds, which invest among eight to 11 asset classes. At least eight managers run each fund.
Funds are sold through banks, financial intermediaries and investment professionals. Banks may offer their own funds and other firms' funds alongside Federated's funds.
The bank trust clients using the funds run the gamut from personal trusts to 401(k) plans and IRAs.