Pulling back from the immediate term, we continue to believe that companies and investors alike are still adjusting to the normalization of both inflation and interest rates in the US.
Market Review
Equity markets ended the second quarter mixed as central-bank activity began to diverge. Canada, Sweden, Switzerland and the European Central Bank (ECB) cut rates, while the U.S. Federal Reserve (Fed) waited on further evidence of slowing inflation. The S&P 500® Index added 4.28%, the MSCI EAFE Index, a measure of non-U.S. developed markets, retreated -0.42%, while the MSCI Emerging Markets Index jumped 5.00%. Bifurcation, or disjointed market movements, continued in the quarter, as artificial intelligence powered U.S. growth stocks, which significantly outperformed their value peers, while small caps lagged and underperformed their large-cap counterparts.
Quality Performance
BNY Mellon Dynamic Value Fund (Class A at NAV) returned -1.47% during the second quarter of 2024. In comparison, the fund’s benchmark, the Russell 1000 Value Index (the “Index”), returned -2.17% for the same time period.
Average Annual Total Returns (6/30/24)
|
Share Class / Inception Date |
3 Month |
YTD |
1 Year |
3 Year |
5 Year |
10 Year |
|
Class A (NAV) / 9/29/95 |
-1.47% |
7.89% |
16.67% |
11.13% |
13.74% |
10.52% |
|
Class A (5.75% max. load) |
-7.12% |
1.68% |
9.96% |
8.96% |
12.40% |
9.86% |
|
Class I (NAV) / 5/31/01 |
-1.41% |
8.01% |
16.95% |
11.41% |
14.02% |
10.79% |
|
Russell 1000® Value Index |
-2.17% |
6.62% |
13.06% |
5.52% |
9.01% |
8.23% |
|
The performance data quoted represents past performance, which is no guarantee of future results. Share price and investment return fluctuate, and an investor’s shares may be worth more or less than original cost upon redemption. Current performance may be lower or higher than the performance quoted. Performance for periods less than 1 year is not annualized. Go to Welcome to BNY Mellon Investment Management for the fund’s most recent month-end returns. Returns assume the reinvestment of dividends and capital gains, if any. |
Total Expenses (6/30/24)
|
Share Class |
Gross[1] |
Net[2] |
|
Class A |
0.94% |
0.93% |
|
Class I |
0.72% |
0.68% |
| [1] Gross expenses is the total annual operating expense ratio for the fund, before any fee waivers or expense reimbursements. [2] Net Expenses is the total annual operating expense ratio for the fund, after any applicable fee waivers or expense reimbursements. The net expense ratio(s) reflect a contractual expense reduction agreement through 12/29/2024, without which, the returns would have been lower. The Net Expenses is the actual fund expense ratio applicable to investors. Not all classes of shares may be available to all investors or through all broker-dealer platforms. |
Market Review (continued)
In the U.S., markets reached new all-time highs, with technology stocks again leading the charge, buoyed by AI enthusiasm. Corporate earnings were largely in line with, or above, analysts’ expectations while Nvidia’s (NVDA) market capitalization surged from $1 trillion to over $3 trillion in just 12 months. However, market gains were largely concentrated in just a few sectors, namely information technology and communication services, while other sectors declined. The Federal Open Market Committee left interest rates unchanged as officials continued to express concerns about pricing pressures. With inflation measures slowly easing, markets are now pricing in a September rate cut. While U.S. Treasury yields experienced a spike following weak auction demand, the 10-year note ended the quarter roughly where it began. The U.S. dollar ended the quarter higher.
Developed international markets retreated in the second quarter. Investor sentiment quickly shifted from optimism over the ECB’s early June rate cut — its first since 2019 — to uncertainty following French President Emmanuel Macron’s calling for a shock parliamentary election. As inflation returned to the ECB’s 2% target, the central bank cut its deposit rate by 25 basis points. Inflation in the UK fell less than expected; the Bank of England held rates steady but is expected to reduce rates this summer. The Bank of Japan (BOJ) left interest rates unchanged for the quarter, disappointing traders who were looking for hints of further rate increases. The BOJ’s decision accelerated yen weakness, despite interventions over the quarter by Japanese authorities to prop up the currency. The yen’s continued weakness increased monetary tightening expectations in Japan. While European stock markets declined, Japanese stocks rallied in the quarter.
Emerging-market equities advanced and outperformed their developed-market counterparts, led by gains from China and India. Markets reacted positively to wide-ranging stimulus from China — the world’s second-largest economy — to support its property markets, as well as to positive earnings reports from several bellwethers. Given Taiwan’s crucial role in the AI supply chain, Taiwanese stocks surged ahead along with the U.S. technology sector on AI enthusiasm. Indian equities moved higher as Prime Minister Narendra Modi, who reassured markets with pro-growth policies, was sworn in for a record-equaling third term. In Latin America, Brazil’s central bank increased its economic growth forecasts and inflation projections, leaving interest rates unchanged for the quarter and raising the possibility of rate hikes. In Argentina, markets rallied at quarter end following the approval of free-market overhauls and fiscal measures designed to attract investment and revive the country’s economy.
Commodities gained for the quarter. Energy prices ended flat but were volatile over the period. Crude prices rose on increased geopolitical tensions, then declined on supply concerns following a decision by the Saudi-led Organization of the Petroleum Exporting Countries (OPEC) and its Russia-led allies to gradually unwind a complex array of production cuts. Metals registered solid performance, as copper prices soared and gold reached an all-time high on continued hopes for Fed easing. The Dow Jones Commodity Index, which holds its largest weighting in gold, added 3.22% for the second quarter.
|
Top 10 Holdings (6/30/24) |
% |
|
JPMorgan Chase & Co. (JPM) |
4.36 |
|
Berkshire Hathaway Inc. Class B (BRK.B) |
4.00 |
|
Danaher Corporation (DHR) |
2.78 |
|
Becton, Dickinson and Company (BDX) |
2.77 |
|
Cisco Systems (CSCO) |
2.64 |
|
Newmont Corporation (NEM) |
2.30 |
|
Phillips 66 (PSX) |
2.17 |
|
AT&T (T) |
2.16 |
|
UnitedHealth Group Incorporated (UNH) |
2.15 |
|
Goldman Sachs Group (GS) |
2.13 |
|
The holdings listed should not be considered recommendations to buy or sell a security. Large concentrations can increase share price volatility. |
|
Performance Review
The fund (Class A shares at NAV) outperformed its benchmark, the Russell 1000 Value Index, during the second quarter of 2024. Stock selection in the health care and industrials sectors contributed, while selection in energy and an underweight to consumer staples detracted.
Sector Review1
Positive Impacts
Health Care: Stock selection in the health care sector contributed to quarterly returns, particularly in the pharmaceuticals space.
Industrials: Stock selection in the sector also contributed, particularly not owning several underperforming machinery names.
Negative Impacts
Energy: Stock selection in the energy sector weighed on relative returns as oil prices have come under pressure, especially our position in Phillips 66.
Consumer Staples: Stock selection in the defensive consumer staples sector detracted, most notably due to the position in Kenvue.
Stock Review1
Positive Impacts
Newmont Corporation: Shares of one of the world’s leading gold miners, Newmont, rose after reporting results that beat expectations on both production and costs. In addition, the firm continues to benefit from the increase in the gold price.
Goldman Sachs Group: As one of the best-positioned banks for an economic soft landing in our view, Goldman Sachs performed well as investment banking volumes have continued to move higher.
Alphabet Class A: Shares of Alphabet rose over the period on sustained enthusiasm by investors for the market leaders in AI, cloud and search services.
Negative Impacts
Kenvue: Kenvue, whose core business is over-the-counter (OTC) medicines, saw weakening sales over the past quarter, given a more muted cold and flu season versus last year. Kenvue is also a skincare business with mass-market pricing; this section also performed poorly due to intense competition from “indie brands” and mis-execution from the management team.
Phillips 66: Following a strong start to the year, shares of Phillips 66 were weak over the period. The company reported results below market expectations and provided a muted outlook on demand for the remainder of 2024.
CRH public limited company: Following strong stock price appreciation to start the year, shares of building materials company CRH took a breather as investors took some profits and considered the potential changes in fiscal spending around infrastructure ahead of the US elections.
Market Outlook
As we cross the halfway point of 2024, we maintain our “balanced” approach to the markets and value investing. While consensus expectations for interest rates are more aligned with the Fed’s guidance today than it was at the start of the year, it remains the top macro concern for many investors. Given the uncertainty around the trajectory of both inflation and economic growth, we believe it’s prudent to consider a wider dispersion of potential outcomes. Furthermore, the upcoming U.S. elections are now taking up more investor mindshare. While still relatively early in the campaign season, it has already been eventful and will likely lead to added uncertainty around potential outcomes and, therefore, volatility.
From an investment perspective, as bottom-up, fundamental stock pickers, we will continue to view these macro risks through the lens of the companies in which we look to invest and lean on our investment process to identify the best idiosyncratic opportunities. Pulling back from the immediate term, we continue to believe that companies and investors alike are still adjusting to the normalization of both inflation and interest rates in the U.S. — not to pre-pandemic levels, but to pre-global financial crisis levels. In other words, we expect inflation to be higher and more persistent than in the 12 years leading up to the pandemic, which will cause interest rates to likely be higher as a result. While we acknowledge that inflation has moderated off its peak and is headed in the right direction, and monetary policy will likely follow in due course, we firmly believe that the days of “benign” inflation and “free money” are now behind us. On the political front, while we do not have an edge on the potential outcome, we are closely monitoring our holdings with exposure to things like fiscal policy, infrastructure spending, and deglobalization.
Similar to macro outcomes, the current environment is leading to a wider dispersion of returns among companies. As a result, going forward, we believe that fundamentals, valuations and the ability to generate “in-house” liquidity via free cash flow can now play a larger role in separating the winners from losers. As always, we favor companies sitting at the nexus of robust fundamentals, attractive valuations and catalyst-driven business momentum.
|
Footnote 1 Performance of individual stock evaluated is based on total effect. Total effect represents the opportunity cost of an investment manager’s investment decisions relative to an overall benchmark, which can include holdings that are not held by the portfolio but contribute to relative portfolio performance. Investors should consider the investment objectives, risks, charges and expenses of a mutual fund carefully before investing. To obtain a prospectus, or a summary prospectus, if available, that contains this and other information about a fund, contact your financial professional. For more information, call 1-800-373-9387 or visit Welcome to BNY Mellon Investment Management. Read the prospectus carefully before investing. Investors should discuss with their financial professional the eligibility requirements for Class I and Y shares, which are available only to certain eligible investors, and the historical results achieved by the fund’s respective share classes. Past performance is no guarantee of future results. Risks Equities are subject to market, market sector, market liquidity, issuer, and investment style risks, to varying degrees. 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. As of 6/30/24 the companies mentioned represented 10.82% of the fund’s portfolio in the aggregate. The holdings listed should not be considered recommendations to buy or sell a particular security. Other holdings may not have performed as well as some of those listed herein. Portfolio composition is subject to change at any time. The Russell 1000® Value Index is an unmanaged index which measures the performance of those Russell 1000 ® companies with lower price-to-book ratios and lower forecasted growth values. The S&P 500® Index is widely regarded as the best single gauge of large-cap U.S. equities. The index includes 500 leading companies and captures approximately 80% coverage of available market capitalization. This is not a benchmark for the fund. The Morgan Stanley Capital International Europe, Australasia, Far East (MSCI EAFE®) Index is a free float-adjusted, market capitalization-weighted index that is designed to measure equity performance in developed markets, excluding the United States and Canada. The index consists of select designated MSCI national developed market indices. The MSCI Emerging Markets Index is a free float-adjusted, market capitalization-weighted index that is designed to measure the equity performance in global emerging markets. The index consists of 22 MSCI emerging-market national indices. This is not a benchmark for the fund. The Dow Jones Commodity Index is a broad measure of the commodity futures market that emphasizes diversification and liquidity through a simple, straightforward, equal-weighted approach. The index tracks 28 different commodities, from agricultural to precious metals to energy products. An investor cannot invest directly in any index. The fund’s investment adviser is BNY Mellon Investment Adviser, Inc. (BNYM Investment Adviser). BNYM Investment Adviser has engaged its affiliate, Newton Investment Management North America, LLC (NIMNA), to serve as the fund’s sub-adviser. NIMNA has entered into a sub-sub-investment advisory agreement with its affiliate, Newton Investment Management Limited (NIM), to enable NIM to provide certain advisory services to NIMNA for the benefit of the fund. 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. This information contains projections or other forward-looking statements regarding future events, targets or expectations, and is only current as of the date indicated. There is no assurance that such events or expectations will be achieved, and actual results may be significantly different from that shown here. 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. No part of this material may be reproduced in any form, or referred to in any other publication, without express written permission. BNY Mellon Investment Adviser, Inc., Newton Investment Management Limited, Newton Investment Management North America (NIMNA) and BNY Mellon Securities Corporation are subsidiaries of BNY. BNY is the corporate brand of The Bank of New York Mellon Corporation. © 2024 BNY Mellon Securities Corporation, distributor, 240 Greenwich Street, 9th Floor, New York, NY 10286. |
Original Post
Editor’s Note: The summary bullets for this article were chosen by Seeking Alpha editors.
Read the full article here
