BNY Mellon Fixed Income Strategies
Why fixed income now?
After more than a decade of near-zero rates and low returns from fixed income investments, a new market paradigm is emerging. Bond yields have already risen significantly over the past 18 months in response to dramatic tightening by the Fed. As rates peak, the traditional negative correlation between fixed income and equity markets should return, and with it, the power of bonds as a diversifying asset. But investors may be able to benefit from the current market opportunities in fixed income.
In an uncertain world, a rigorous, disciplined and consistent approach to bond investing is essential.
Our core fixed income funds focus on extensive bottom-up research and an intentional, outcome-focused approach. Deep expertise and nimble active management enable us to seek out opportunities from across the fixed income universe.
Carefully risk managed through a focus on high-quality bond issues, our BNY Mellon Core Plus Fund and BNY Mellon Global Fixed Income Fund seek to offer a balance of income, opportunity and diversification with an aim to maximize the potential for consistent returns.
That’s intentional fixed income.
Intermediate-term bonds have tended to enjoy higher total returns as central bank tightening peaks, pauses and begins to ease.
Duration is a measure of volatility expressed in years; the higher the number, the greater the potential for volatility as interest rates change
With yields improving significantly, intermediate-term bonds are providing meaningful income again for the first time in years
Extending duration may help protect investors from the risk of having to reinvest at lower rates as some short-term instruments mature
Intermediate bonds afford investors the opportunity to capture the potential for price appreciation over time, which may result in higher total returns
Intermediate bonds tended to have a stronger negative correlation with equities, offering better diversification, while providing ballast, or stability, from equity sell-offs.
"Staying up in quality" seeks to minimize credit losses relative to lower, non-investment grade sectors of the market that are less liquid and more sensitive to deterioration
Fixed income yields have risen from a period of historic lows
With income typically driving the majority of total return for bonds, we believe the return of higher
market yields may represent an attractive investment opportunity.
Source: Bloomberg, 6/30/2023. For illustrative purposes only and does not reflect the past or current performance of any
BNY Mellon Investment Management product. Past performance is not indicative of future results.
The BNY Mellon Core Plus Fund (DCPIX - I shares) provides broad access to high-quality fixed income in an actively managed, outcome-focused strategy. Carefully considered, with a focus on bottom-up bond selection. The fund is nimble enough to move swiftly in and out of positions to discover tactical opportunities as they arise.
Over the past 15 years, US core fixed income has offered useful diversification
from equities not offered by high yield bonds or bank loans.
A statistic that measures the degree to which two variables move in relation to each other. A negative number shows two assets have historically moved in the opposite direction, while a positive number shows they have historically moved in the same direction at the same time.
With over 60% of all bonds issued beyond our borders, a traditional US-focused investing approach risks leaving potential opportunities out of reach.3 The BNY Mellon Global Fixed Income Fund (Class I – SFGIX) expands the number of tools in your investing toolbox. Going global can potentially provide additional investment returns and diversification benefits and offer an array of interest-rate opportunities. However, navigating the complex global bond marketplace calls for an experienced team.
Bonds are back. Find out why Brendan Murphy, Head of Core Fixed Income at Insight Investment, believes now may be the time to expand your horizons for fixed income opportunities, especially overseas. Click on the video below to learn why we believe
that fixed income is back in fashion.
Overall Morningstar Rating
(552 funds rated)1
Class I - DCPIX
The fund seeks high total return consistent with preservation of capital. To pursue its goal, the fund normally invests in a diversified portfolio of fixed-income securities of U.S. and foreign issuers. Typically, the fund’s portfolio can be expected to have an average effective duration ranging between three and eight years.
Overall Morningstar Rating
(123 funds rated)2
Class I - SDGIX
The fund seeks to maximize total return while realizing a market level of income consistent with preserving principal and liquidity. To pursue its goal, the fund normally invests at least 80% of its net assets, plus any borrowings for investment purposes, in U.S. dollar and non-U.S. dollar-denominated fixed-income securities of governments and companies located in various countries, including emerging markets. The fund generally invests in eight or more countries, but always invests in at least three countries, one of which may be the U.S. The fund may invest up to 25% of its net assets in emerging markets generally and up to 7% of its assets in any single emerging market country.
Gautam Khanna answers investors’ frequently asked questions about Fixed Income.
Although past performance is no guarantee of future results, intermediate bonds have historically enjoyed higher total returns over short duration strategies as Fed tightening cycles peak.⁴ Historically, these periods of outperformance can be sustained during periods of Fed pause and accelerate further during Fed easing cycles.
Maintaining an evergreen allocation to intermediate bonds may help investors seek higher fixed income returns over cash and short duration while also serving as an overall portfolio dampener during periods of economic deceleration and related equity market weakness
The outlook for monetary policy will be the major driver. It will depend on the resilience of economic growth and hence the persistence of inflation. A lot depends on the Fed’s unenviable challenge of controlling inflation without loosening the labor market too much to inflict major harm. Political risk will also drive volatility, with Congress’ impending stand-off over the debt ceiling a material event risk over the summer.
We believe the Fed is close to ending its hiking cycle, but we expect it to be on hold for some time before cutting rates, as inflation will likely still take time to reach the Fed’s target.
For global fixed income portfolios, the important consideration is that much of the developed world is at an earlier stage of the rate hiking cycle than the U.S. Conversely, many emerging markets are in the opposite situation. This may open the door for intermarket relative value trades.
For Core Plus strategies, our strategy will continue to target income and diversification. As such, it is important to ensure some quality duration exposure, which measures how much bond prices could change if interest rates fluctuate, in case rates rally faster than we expect. We also see income opportunities across investment grade credit, with additional selective value in certain areas.
Technological change will likely continue to disrupt economies and create opportunities for investors. The increasingly rapid dissemination and democratization of information will cause more rapid price reaction functions than in the past, evolving the game for active managers in particular. More elevated levels of volatility, combined with structural changes in some sectors, creates an environment where active management can potentially allow value to be added via sector and stock selection.
In a low-rate environment, passive investment approaches have benefitted by offering good returns with very low fees. In fixed income the rise of passive investment will potentially help increase opportunities for active funds. Passive funds simply reflect issuance patterns. They also are forced sellers or buyers of downgraded and upgraded bonds, respectively. When passive investment dominates, bond markets can be prone to herd mentality. This can allow active managers greater potential to benefit from inefficient pricing opportunities and market dislocations.
One of the main secular trends, globalization, is moderating, due to geopolitical uncertainty and looking to diversify their industrial exposure from China. This may help inflationary pressures linger.
Separately, global central bank policymaking is becoming increasingly coordinated, as the pandemic and recent banking sector woes showed. We see this as good news for the health of financial system and ongoing functionality of credit markets.
Further, the worldwide growth of ESG investing increasingly appears here to stay. Ultimately, companies that do not manage ESG risks may be seen as unfavorable by the market and may impact their access to global finance.
Insight Investment is a leader in global fixed income and liability-driven investing with a rich history of innovation across fixed income markets. Our investment teams specialize across corporate and structured credit, government and municipal bonds, stable value, emerging market debt, liquidity solutions and currencies.
In contrast to the traditional focus on maximizing return and minimizing volatility, our approach prioritizes the certainty of meeting investors’ chosen objectives by diagnosing and managing risks to a desired outcome. We focus on consistency of returns by taking only compensated risks, seeking sustainable sources of income and aiming to exploit pricing inefficiencies across the full fixed income universe.
Established in 1784, BNY Mellon is America’s oldest bank and the first company listed on the New York Stock Exchange (NYSE: BK). Today, BNY Mellon powers capital markets around the world through comprehensive solutions that help clients manage and service their financial assets throughout the investment life cycle. BNY Mellon had $46.9 trillion in assets under custody and/or administration and $1.9 trillion in assets under management as of June 30, 2023. BNY Mellon is the corporate brand of The Bank of New York Mellon Corporation. Additional information is available on www.bnymellon.com. Follow us on LinkedIn or visit our Newsroom for the latest company news.
1Morningstar Rating™ as of August 31, 2023 for the Class I class shares; other classes may have different performance characteristics. Overall rating for the Intermediate Core-Plus Bond category. Fund ratings are out of 5 Stars: Overall 4 Stars (552 funds rated); 3 Yrs. 3 Stars (552 funds rated); 5 Yrs. 4 Stars (518 funds rated); 10 Yrs. 5 Stars (367 funds rated). The Morningstar Rating™ for funds, or "star rating", is calculated for managed products with at least a 3-year history. It is calculated based on a Morningstar Risk-Adjusted Return measure that accounts for variation in a managed product's monthly excess performance (not including the effects of sales charges, loads and redemption fees if applicable), placing more emphasis on downward variations and rewarding consistent performance. Managed products; including open-end mutual funds, closed-end funds and exchange-traded funds; are considered a single population for comparative purposes. The top 10% of products in each product category receive 5 stars, the next 22.5% receive 4 stars, the next 35% receive 3 stars, the next 22.5% receive 2 stars, and the bottom 10% receive 1 star. The Overall Morningstar Rating for a managed product is derived from a weighted average of the performance figures associated with its 3-, 5-, and 10-year (if applicable) Morningstar Rating metrics. ©2023 Morningstar, Inc. All rights reserved. The information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete, or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information. Past performance is no guarantee of future results. The fund represents a single portfolio with multiple share classes that have different expense structures. Other share classes may have achieved different results.
2Morningstar Rating™ as of August 31, 2023 for the Class I class shares; other classes may have different performance characteristics. Overall rating for the Global Bond-USD Hedged category. Fund ratings are out of 5 Stars: Overall 4 Stars (123 funds rated); 3 Yrs. 4 Stars (123 funds rated); 5 Yrs. 5 Stars (102 funds rated); 10 Yrs. 4 Stars (65 funds rated). The Morningstar Rating™ for funds, or "star rating", is calculated for managed products with at least a 3-year history. It is calculated based on a Morningstar Risk-Adjusted Return measure that accounts for variation in a managed product's monthly excess performance (not including the effects of sales charges, loads and redemption fees if applicable), placing more emphasis on downward variations and rewarding consistent performance. Managed products; including open-end mutual funds, closed-end funds and exchange-traded funds; are considered a single population for comparative purposes. The top 10% of products in each product category receive 5 stars, the next 22.5% receive 4 stars, the next 35% receive 3 stars, the next 22.5% receive 2 stars, and the bottom 10% receive 1 star. The Overall Morningstar Rating for a managed product is derived from a weighted average of the performance figures associated with its 3-, 5-, and 10-year (if applicable) Morningstar Rating metrics. ©2023 Morningstar, Inc. All rights reserved. The information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete, or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information. Past performance is no guarantee of future results. The fund represents a single portfolio with multiple share classes that have different expense structures. Other share classes may have achieved different results.
3Factset as of March 31, 2023.
4Source: Bloomberg, 12/9/2022 using Bloomberg Indices for 12-month rolling annual returns, quarterly. Indices: 1-3YR Bloomberg Aggregate Index, 5-7YR Bloomberg Aggregate Index, 7-10YR Bloomberg Aggregate Index, and the Federal Funds Target Rate.
5Assets under management (AUM) are represented by the value of the client’s assets or liabilities Insight is asked to manage. These will primarily be the mark-to-market value of securities managed on behalf of clients, including collateral if applicable. Where a client mandate requires Insight to manage some or all of a client’s liabilities (e.g. LDI strategies), AUM will be equal to the value of the client specific liability benchmark and/or the notional value of other risk exposure through the use of derivatives. Insight North America (INA) is part of ‘Insight’ or ‘Insight Investment’, the corporate brand for certain asset management companies operated by Insight Investment Management Limited including, among others, Insight Investment Management (Global) Limited (IIMG), Insight Investment International Limited (IIIL) and Insight Investment Management (Europe) Limited (IIMEL). Advisory services referenced herein are available in the US only through INA. Legal entity Insight North America LLC’s AUM is $800.7bn as of June 30, 2023. Figures shown in USD. FX rates as per WM Reuters 4pm spot rates. Excludes previous parent introduced assets prior to 2009. Includes employees of Insight North America LLC (INA) and its affiliates, which provide asset management services as part of Insight, the corporate brand for certain companies operated by Insight Investment Management Limited (IIML).
Investors should consider the investment objectives, risks, charges, and expenses of a mutual fund carefully before investing. Contact a financial professional or visit im.bnymellon.com to obtain a prospectus, or summary prospectus, if available, that contains this and other information about the fund, and read it carefully before investing.
All investments involve risk including loss of principal. Certain investments involve greater or unique risks that should be considered along with the objectives, fees, and expenses before investing.
Bonds are subject to interest rate, credit, liquidity, call and market risks, to varying degrees. Generally, all other factors being equal, bond prices are inversely related to interest-rate changes and rate increases can cause price decline. Bonds are subject to interest rate, credit, liquidity, call and market risks, to varying degrees. Generally, all other factors being equal, bond prices are inversely related to interest-rate changes and rate increases can cause price declines. Mortgage-backed securities: Ginnie Maes and other securities backed by the full faith and credit of the United States are guaranteed only as to the timely payment of interest and principal when held to maturity. The market prices for such mortgage-backed securities are not guaranteed and will fluctuate. Privately issued mortgage related securities also are subject to credit risks associated with the underlying mortgage properties. These securities may be more volatile and less liquid than more traditional, government backed debt securities. Privately issued mortgage related securities also are subject to credit risks associated with the underlying mortgage properties. High yield bonds involve increased credit and liquidity risk than higher rated bonds and are considered speculative in terms of the issuer's ability to pay interest and repay principal on a timely basis. Investing in foreign denominated and/or domiciled securities involves special risks, including changes in currency exchange rates, political, economic, and social instability, limited company information, differing auditing and legal standards, and less market liquidity. These risks generally are greater with emerging market countries.
No investment strategy or risk management technique can guarantee returns or eliminate risk in any market environment.
This material has been provided for informational purposes only and should not be construed as investment advice or a recommendation of any particular investment product, strategy, investment manager or account arrangement, and should not serve as a primary basis for investment decisions. Prospective investors should consult a legal, tax or financial professional in order to determine whether any investment product, strategy or service is appropriate for their particular circumstances. Views expressed are those of the author stated and do not reflect views of other managers or the firm overall. Views are current as of the date of this publication and subject to change.
The information is based on current market conditions, which will fluctuate and may be superseded by subsequent market events or for other reasons. References to specific securities, asset classes and financial markets are for illustrative purposes only and are not intended to be and should not be interpreted as recommendations. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed.
The fund's investment adviser is BNY Mellon Investment Adviser, Inc. (BNYM Investment Adviser). BNYM Investment Adviser has engaged its affiliate, Insight North America LLC (INA), to serve as the fund's sub-adviser. BNYM Investment Adviser, INA and BNY Mellon Securities Corporation are subsidiaries of The Bank of New York Mellon Corporation.
Not FDIC-Insured | No Bank Guarantee | May Lose Value