Investments can go down as well as up, so there is always a risk that you will get back less than what you invested. Nothing here is personal advice, if in doubt you should seek advice.

• The experienced Real Return team is implementing its proven strategy on this fund, but with more emphasis on sustainability
• It is one of the best resourced teams in the industry
• We believe this fund could be used to help smooth the returns of a larger investment portfolio.
• This fund is part of our Wealth Shortlist of funds chosen by our analysts for their long-term performance potential.

How it fits into a portfolio

The BNY Mellon Sustainable Real Return fund aims to reduce volatility by providing some shelter during market fluctuations, while providing long-term growth in a sustainable manner, by investing in companies that meet their environmental, social and governance standards. internal (ESG) Criteria. This means that it could be a good option for a more defensive portfolio looking for more stable earnings and for those looking to invest in responsible funds. It could also be a useful addition to more adventurous equity-focused portfolios, giving exposure to other asset classes and adding some balance.

Director

Matthew Brown and Philip Shucksmith have managed the fund since its launch in April 2018. They are both seasoned investors and have been part of the Real Return team for over a decade.

However, BNY Mellon’s team investment process is based on the premise that the whole is greater than the sum of its parts. The fund is managed with an investment approach that relies heavily on the skills and experience of the broader real return investment team.

The team has built up a good track record over a long period of time with the BNY Mellon Real Return Fund, which has been on the Wealth Shortlist (and formerly Wealth 50 and 150) since December 2010. The team’s experience and Proven investment process gives us the assurance that they can generate good returns on a sustainable basis with this fund, although there are no guarantees.

To treat

The team aims to make money in various market conditions. To do this, they use a mix of assets that fall broadly into two camps. The first is called the “return search kernel”. He invests in assets that the team believes will provide long-term growth, such as stocks and bonds issued by well-managed, financially secure companies with a unique set of advantages over the competition. They also examine how well these companies manage their impact on the environment and society.

The remainder of the portfolio is called the “stabilizer layer” and invests in government bonds, commodities and cash, with the aim of adding stability to returns. The managers modify the amount invested in each part of the portfolio according to their vision of the world.

The team puts more emphasis on not losing money than on making it. If you lose less money in bad times, you have less ground to catch up in good times. They use diversification, hedging (investing to potentially benefit from a range of outcomes) and liquidity (investing in things that are easy to sell) to achieve this, as well as derivatives, which can add risk. The team also has the option of investing in high yield bonds and emerging markets which, if used, add additional risk.

The fund’s enduring “red lines” mean that companies that violate the principles of the United Nations Global Compact (a United Nations pact on human rights, labor, the environment and the fight against corruption) and those incompatible with the objective of limiting global warming to 2 ° C are not considered for the fund. It will also not invest in companies that derive more than 10% of their income from tobacco, alcohol, gambling and several other contentious industries. The team engages with the companies they invest in on a range of ESG issues and reports on progress in their Responsible Investing report (available on the BNY Mellon website).

The responsible investment team has a veto right over companies held in the BNY Mellon Sustainable Real Return Fund. This means that the final decision is separate from the managers and helps provide an additional layer of challenge.

At the end of October 2021, 86% of the fund was invested in the “yield-seeking core” – this figure was only 60% at the start of the coronavirus pandemic in March 2020. Three quarters of the portion of the portfolio at the search for yield is made up of stocks. The remainder includes corporate and emerging market bonds, as well as alternatives such as real estate, infrastructure and commodities.

The stabilizing layer currently represents just over 14% of the portfolio. The team currently has no confidence in the ability of government bonds or gold to act as stabilizing assets, and these have been sold out of the portfolio. Instead, the stabilization layer includes a larger investment in cash and greater use of index put options. Put options give managers the ability to sell the investment at a fixed price, which helps protect the portfolio in the event the stock markets fall.

Culture

BNY Mellon is a very large company based in the United States, so managers have a lot of resources at their disposal. Until mid-2019 they were part of the Newton brand, but although the name has now changed to that of the parent company, the way the managers manage the fund remains the same.

In September 2021, Mellon Investments merged its equities and multi-asset teams into Newton. So far, this has not directly affected the managers of this fund, although it has given them access to a larger pool of research analysts who could be of assistance.

We appreciate that fund managers are given incentives in a way that aligns their interests with those of long-term investors. However, there have been significant departures of fund managers in recent years and we continue to monitor this situation closely.

Cost

This fund is available for an ongoing annual fee of 0.83%, which makes it more expensive than the BNY Mellon Real Return Fund, which has a net ongoing charge of 0.60% for HL clients. While there may be a slightly higher charge for the additional sustainability analysis performed within this fund, we believe the charges are high and investors should keep in mind that this creates a bigger hurdle for managers. generate positive returns. HL platform fees of up to 0.45% per annum also apply.

Please note that fund charges may be taken out of the capital. This increases the return but reduces the potential for capital growth.

Performance

From 1 October 2021, the fund’s performance benchmark changed from 1 month GBP LIBOR + 4% to SONIA (30 day compound) + 4%. This is because sterling LIBOR will cease to be published after December 31, 2021 and SONIA (Sterling Overnight Index Average) is expected to be adopted as the industry standard to represent cash in pounds sterling.

The fund has performed well since inception, beating both its official benchmark, SONIA + 4%, and its industry peers IA Targeted Absolute Return, although this is a short timeframe and past performance is no guarantee of the future. The value of all funds will go up and down, so you may get back less than what you invest.

The fund has also performed well over the past year. During this period, stocks were the main contributor to returns. Meanwhile, the stabilization layer, which is meant to protect the portfolio in the event of a stock market downturn, has acted as a drag – something it is likely to do when shelter is not needed.

Past performance is no guarantee of the future. Source: Lipper IM as of 11/30/2021.

* Fund launched on April 24, 2018. Full year performance data before this date is not available.

Find out more about the BNY Mellon Sustainable Real Return fund, including fees

BNY Mellon Sustainable Real Return Key investor information

Important information – Remember that the value of investments, and any income from them, can go down as well as up, so you might get back less than what you invested. This article is provided to help you make your own investment decisions, it is not advice. If you are unsure of the suitability of an investment for your situation, please seek advice. No news or research is a personal recommendation to address.