JANUARY WAS ITS BEST MONTH EVER FOR MUTUAL FUNDS: BEAR STEARNS IS OUT OF HIBERNATION

Bear Stearns & Co.’s effort to make a name for itself in the tough mutual fund market is beginning to pay off.

Sales of its 11 mutual funds jumped about 55% from June through December, compared to the same period in 1996. And in January, the mutual funds group had its best month ever in terms of sales, attracting $40 million in new assets thanks to a beefed-up sales force, the rollout of four new funds and the addition of B shares, sold without a front-end sales charge, that help the load funds compete with no-loads. As of Feb. 23, the group had sales of $22 million for the month and was expected to finish at $40 million.

Seeking to attract a steadier stream of revenue, the old-line securities firm got into the mutual fund business three years ago.

It didn’t throw its full weight behind the effort until early last year, however, when it hired Barry Sommers from competitor Goldman, Sachs & Co., where he was a vice president in charge of mutual fund sales. Mr. Sommers, a managing director, has pushed to bulk up the company’s mutual fund sales force, which tripled to 16 in December. A month later the New York-based firm launched four new funds in an effort to round out its offerings.

sold through advisers

The funds, which have total assets of $550 million, are sold mostly through financial planners, registered investment advisers and regional broker-dealers.

“While they may be getting in late, (the mutual fund market) is still a very profitable business and for them to ignore it altogether would have been foolhardy,” says Gruntal & Co. analyst Katrina Blecher, adding that the introduction of mutual funds has helped boost sales to high-net-worth clients. “It shows they are nimble,” she says.

Indeed, this isn’t the first time Bear Stearns has sought to enter a crowded market late in the game.

In the early 1990s, with the merger-and-acquisition market reaching a fever pitch, it threw more resources behind its investment banking activities, shaking up competitors who consider
ed it an also-ran by landing lead roles in such high-profile deals as Walt Disney Co.’s acquisition of Capital Cities/ABC Inc. and the merger of Bell Atlantic and Nynex.

Bear Stearns may be diversifying its business lines just in time. Its most recent quarterly earnings fell 3.2% as expenses surged and trading revenue, traditionally the company’s largest source of revenue, dropped off. At the same time, investment banking revenues surged 52% to $278.9 million.

tracking corporate insiders

In its foray into mutual funds, the company has sought to set itself apart by offering more than standard fare. Its Insiders Select Fund, for instance, bases its buy-and-sell decisions on the trading activity of corporate insiders. Launched in June 1995, the $29.8 million fund posted a one-year return of 30.09% and a year-to-date return of 7.96% for A shares, which are sold with a sales charge, as of Feb. 19. It beat its peers, which averaged 6.11% for the year-to-date period and 25.47% for the one-year period, according to Lipper Analytical Services Inc.

Although investors are beginning to notice such returns, Bear Stearns still faces formidable competition from companies that are household names in mutual funds.

“Our biggest challenge is access to distribution,” says Mr. Sommers. “That’s the toughest part of this business.”