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Since the financial crisis of 2008, central banks across the globe have attempted to stimulate economic growth by setting historically low interest rates and aggressively buying financial assets on the open market. This unprecedented monetary experiment proved powerful, as major global economies are now simultaneously expanding. While some countries, like the U.S., are further along in their expansion progress, many are only recently gaining momentum.
The global landscape is always evolving. As illustrated in the chart below, U.S. stocks have recently outperformed non-U.S. equity markets while U.S. bonds have underperformed on a calendar-year basis. However, 2017 could indicate a turning point in equities as many international economies are now growing faster than the U.S. Whether investing in stocks or bonds, building a portfolio of actively selected global securities offers investors the potential to identify more risk-adjusted return opportunities than from a domestic-only universe.
Individual country factors are ever more important to consider when determining investment decisions. Let’s take a closer look at five key reasons why investors should consider a global approach in today’s market:
|1||Global economies are growing, but at different paces GO|
|2||Powerful population dynamics are supporting economic growth. GO|
|3||Diversify fixed-income opportunities and risks globally for a more robust core GO|
|4||Growth and income opportunities are available to active global equity investors GO|
|5||Global volatility management strategies may offer a better hedge GO|
Investing overseas has additional risks, including changes in currency exchange rates, political and economic concerns, as well as social instability in less developed countries.
Buoyed by easy monetary accommodations, global economies are finally experiencing simultaneous growth. And while the U.S. is still the largest economy in the world, its lead continues to shrink as some emerging market regions more rapidly expand their economic output.
Central banks encouraged developed economies to expand with unprecedented bond purchases and by keeping interest rates low.
After fits and starts, the post-crisis global economy is finally expanding in unison, and could be poised to accelerate.
Also supporting continued, global economic growth is the powerful structural trend of a growing middle class in developing nations. A stronger and larger middle-class population translates to greater consumption-related expenditures, which could in turn benefit global companies looking to tap this trend.
As the middle class of developing nations continues to grow, so should its spending.
Accommodative monetary policy has pushed interest rates to historically low levels, and into negative territory in some regions. With over 60% of today’s bond opportunities coming from outside the U.S., investors should consider a global “core” allocation to help diversify interest-rate risks and seek higher return or yield potential. It’s important to note that diversification cannot assure a profit or protect against loss.
Fixed-income investors should consider a global universe to actively diversify risks and opportunities.
Global bonds that hedge currency risk have demonstrated a stronger risk/reward profile relative to the U.S. fixed-income asset classes. Investing in local currencies can provide additional alpha if the U.S. dollar depreciates.
By taking a global approach, investors can expand their opportunity set for growth or income in their equity portfolios. For example, emerging market equities currently are less expensive relative to developed markets, and non-U.S. companies historically have been a good source of dividend income.
Emerging market equities are relatively “cheap” from a valuation perspective, while also offering greater growth potential relative to U.S. and non-U.S. developed market equities.
Non-U.S. companies have historically paid higher dividends, potentially providing a more consistent component to total return.
Although global economies and central banks are currently supportive of risk assets, no one can predict when market sentiment will turn. In extreme periods of volatility, correlations among traditional asset classes increase, intensifying a portfolio’s drawdown. Investors should consider incorporating a flexible, global alternative strategy that focuses on volatility management to help mitigate “tail” risks, with a return stream uncorrelated to traditional asset classes.
Multialternative allocations can potentially help preserve capital against excessive drawdown risk during periods of heightened volatility in both equity and fixed-income markets.
In today’s increasingly complex economy, a global perspective is not only beneficial, it’s essential. Companies deal with a global web of clients, suppliers and distributors and understanding the entire landscape is crucial to making wise decisions and avoiding risks. We believe you need an investment manager that can deliver the worldwide reach and expertise required to navigate the rapidly evolving world of global investing.
Seeks quality companies with high growth potential in emerging markets
Seeks high income from stocks attractively valued with attractive fundamentals
A multi-asset absolute return strategy
Manages credit, countries and currencies worldwide
Globally diversified core fixed-income alternative
A volatility-managed, multi-asset
global macro strategy
Investors should consider the investment objectives, risks, charges, and expenses of a mutual fund carefully before investing. Contact your financial advisor or visit dreyfus.com to obtain a prospectus, or a summary prospectus, if available, that contains this and other information about the fund, and read it carefully before investing.
BNY Mellon is the corporate brand of The Bank of New York Mellon Corporation. BNY Mellon Investment Management is one of the world’s leading investment management organizations and one of the top U.S. wealth managers, encompassing BNY Mellon’s affiliated investment management firms, wealth management services and global distribution companies.
Asset allocation and diversification cannot ensure a profit or protect against loss in declining markets. Equities are subject to market, market sector, market liquidity, issuer, and investment style risks, to varying degrees. There is no guarantee that dividend-paying companies will continue to pay, or increase, their dividend. 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. 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. Commodities contain heightened risk including market, political, regulatory, and natural conditions, and may not be suitable for all investors. Derivatives and commodity-linked derivatives involve risks different from, or possibly greater than, the risks associated with investing directly in the underlying assets. Derivatives can be highly volatile, illiquid, and difficult to value and there is the risk that changes in the value of a derivative held by the portfolio will not correlate with the underlying instruments or the portfolio’s other investments. Commodity-linked derivative instruments may involve additional costs and risks such as commodity index volatility or factors affecting a particular industry or commodity, such as drought, floods, weather, livestock disease, embargoes, tariffs and international economic, political and regulatory developments. Management risk is the risk that the investment techniques and risk analyses applied will not produce the desired results and that certain policies or developments may affect the investment techniques available to managing certain strategies.
Standard deviation is a statistical measure of the degree to which an individual portfolio return tends to vary from the mean, based on the entire population. The greater the degree of dispersion, the greater the degree of risk. Drawdowns measure an investment’s peak-to-trough performance decline. Correlation measures the degree to which the performance of a given asset class moves in relation to another, on a scale of –1 to 1. Negative 1 indicates a perfectly inverse relationship, 0 indicates no relationship, and 1 indicates a perfectly positive relationship. A Cyclically-Adjusted-Price-to-Earnings (CAPE), or Shiller P/E, is calculated as the price of the S&P 500 divided by the average of 10 years of earnings, adjusted for inflation. The Shiller P/E aims to smooth out the economic and profit cycles to give a more informed view of a company’s price than the traditional price/earnings ratio, which uses only one year of profits.
The Bloomberg Barclays Emerging Markets USD Aggregate Index (EMD – USD) is a flagship hard-currency emerging market debt benchmark that includes fixed- and floating-rate U.S. dollar-denominated debt issued from sovereign, quasi-sovereign, and corporate EM issuers. The MSCI Emerging Markets Index captures large and mid-cap representation across the following 24 Emerging Markets (EM) countries: Brazil, Chile, China, Colombia, Czech Republic, Egypt, Greece, Hungary, India, Indonesia, Korea, Malaysia, Mexico, Pakistan, Peru, Philippines, Poland, Russia, Qatar, South Africa, Taiwan, Thailand, Turkey and United Arab Emirates. The Bloomberg Barclays U.S. Aggregate Bond Index represents the U.S. investment grade fixed rate bond market, with index components for government and corporate securities, mortgage pass-through securities and asset-backed securities. The Bloomberg Barclays Global Aggregate Index represents the non-U.S. investment grade fixed rate bond market, with index components for government and corporate securities, mortgage pass-through securities and asset-backed securities. The Bloomberg Barclays U.S. Corporate High Yield Index measures the USD-denominated, high-yield fixed-rate corporate bond market. The Bloomberg Barclays U.S. Credit Index measures the performance of investment grade corporate debt and agency bonds that are dollar-denominated and have a remaining maturity of greater than one year. The Bloomberg Barclays U.S. Treasury Index measures U.S. dollar-denominated, fixed-rate, nominal debt issued by the U.S. Treasury. The Morgan Stanley Capital International Europe, Australasia, Far East (MSCI EAFE) Index is a widely accepted, unmanaged total return index of foreign stock market performance. The MSCI World is a stock market index of 1,643 ‘world’ stocks. It is maintained by MSCI Inc., formerly Morgan Stanley Capital International, and is used as a common benchmark for ‘world’ or ‘global’ stock funds. The index includes a collection of stocks of all the developed markets in the world, as defined by MSCI. The Morgan Stanley Capital International Emerging Markets (MSCI EM) Index is a widely accepted, unmanaged total return index of emerging stock market performance. Funds in the Morningstar Multialternative Category offer investors exposure to several different alternative investment tactics, and have a majority of their assets exposed to alternative strategies. As these funds are actively managed, an investor’s exposure to different tactics may change slightly over time in response to market movements. Funds in this category include both funds with static allocations to alternative strategies and funds tactically allocating among alternative strategies and asset classes. The gross short exposure is greater than 20%. The Multiverse Index provides a broad-based measure of the global fixed income bond market. The index represents the union of the Bloomberg Barclays Global Aggregate Index and the Global High-Yield Index and captures investment grade and high yield securities in all eligible currencies. The S&P 500 Composite Index is one of the most commonly used benchmarks for the overall U.S. stock market, and is an index that tracks the performance of the largest 500 U.S. companies. The STOXX Europe 600 Index represents large, mid and small capitalization companies across 17 countries of the European region: Austria, Belgium, Czech Republic, Denmark, Finland, France, Germany, Ireland, Italy, Luxembourg, the Netherlands, Norway, Portugal, Spain, Sweden, Switzerland and the United Kingdom. Reflects reinvestment of dividends and, where applicable, capital gain distributions. Investors cannot invest directly in any index.
Mellon Capital Management Corporation (“Mellon Capital”) is an investment adviser registered with the Securities and Exchange Commission (“SEC”) under the Investment Advisers Act of 1940. Mellon Capital is a wholly owned indirect subsidiary of BNY Mellon. The firm is defined as Mellon Capital and includes assets managed as dual officers of BNY Mellon and as dual employees of The Dreyfus Corporation. “Newton” and/or the “Newton Investment Management” brand refers to the following group of affiliated companies: Newton Investment Management Limited, Newton Investment Management (North America) Limited (NIMNA Ltd.) and Newton Investment Management (North America) LLC (NIMNA LLC). NIMNA LLC personnel are supervised persons of NIMNA Ltd. and NIMNA LLC does not provide investment advice, all of which is conducted by NIMNA Ltd. NIMNA LLC and NIMNA Ltd. are the only Newton companies to offer services in the U.S.
This material has been distributed for informational purposes only and should not be considered as investment advice or a recommendation of any particular investment, strategy, investment manager or account arrangement. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed. Please consult a legal, tax or investment advisor in order to determine whether an investment product or service is appropriate for a particular situation. No part of this material may be reproduced in any form, or referred to in any other publication, without express written permission. The Dreyfus Corporation, Newton, Mellon Capital, Standish, Walter Scott and MBSC Securities Corporation are companies of BNY Mellon. © 2017 MBSC Securities Corporation, 225 Liberty Street, 19th Floor, New York, NY 10281.