BNY Mellon Funds Q2 2024 Performance: A Comprehensive Analysis

BNY Mellon Global Stock Fund Q2 2024 Commentary

While the market focus has been on immediate AI beneficiaries, the evolution of the AI journey will likely be a long one, and the gaze of the market may broaden. While the market focus has been on immediate AI beneficiaries, the evolution of the AI journey will likely be a long one, and the gaze of the market may broaden. The rise in global equity markets this quarter masked considerable divergence in country and sector performance. Expectations of a series of interest rate cuts have given way to the realization that the US Federal Reserve and the European Central Bank remain vigilant regarding inflation, although the latter offered up a modest rate cut in June. The 'muddling through' global growth narrative is still common currency, although the picture remains uneven, and political tensions started to intrude on otherwise positive investor sentiment in some markets. Perhaps in view of a more cautious macro backdrop, cyclical sectors were under pressure, but long-duration growth names, particularly in the technology sector, found investor favor. As an indication of the scale of market concentration this quarter, MSCI World Index performance was mainly driven by the Magnificent Seven. The artificial intelligence theme has continued to be a driving force behind the surge of this group. Much debate has surrounded the health of the market given the concentration of the Magnificent Seven within the MSCI World Index. However, our focus is on the health of companies in which we invest and their earnings generation capability, as we believe that is what drives share prices in the long term. The BNY Mellon Global Stock Fund underperformed its benchmark, the MSCI World Index, for the second quarter of 2024. Average Annual Total Returns (6/30/24) From a sector perspective, technology and communications services holdings were the largest contributors in absolute terms. However, industrials stocks underperformed their sector index counterparts and detracted the most from relative performance. Technology holdings also lagged and weighed further on relative return. On a regional basis, the fund's sole emerging markets holding contributed the most on a relative basis. On the downside, US securities trailed compared to their benchmark peers and more than offset any relative gains, largely reflecting the extent of market concentration in US equities around the Magnificent Seven. While the market focus has been on immediate AI beneficiaries, the evolution of the AI journey will likely be a long one, and the gaze of the market may broaden. The investment in infrastructure is occurring because companies across the board are experimenting to see how the ongoing development in AI can potentially benefit their businesses. There will be periods when the market will get over-excited in terms of usage expectations and the pace of adoption or monetization, and for some businesses AI integration may be a slower burn than some of the more bullish proponents of the technology expect. As long-term investors, over the coming years, a focus of our fundamental analysis will be on how companies are employing this technology to reach customers, more efficiently and more profitably, with better products and services. Editor's Note: The summary bullets for this article were chosen by Seeking Alpha editors.

BNY Mellon Global Real Return Fund Q2 2024 Commentary

For risk assets such as equities, the gradual nature of the economic slowdown, easing of inflation and 'dovish' central bank narrative have been sufficient to extend rallies. We believe this uncertain and unpredictable backdrop necessitates a flexible, dynamic portfolio that can reduce risk as the storm clouds gather, with the potential to subsequently capitalize on opportunities as the market backdrop evolves. The fund delivered a marginally negative return over the quarter. In line with its commitment to preserve capital, it managed to mitigate the downside during the period of market weakness in April. Performance was driven by the return-seeking core. Equities led the return drivers and, unsurprisingly, it was the artificial intelligence-focused names, including TSMC (TSM) and Nvidia (NVDA), that were responsible for the lion's share of the gains. Elsewhere, emerging-market debt detracted, driven by the position in longer-dated Mexican debt. BNY Mellon Global Real Return Fund produced a slightly negative return for the second quarter of 2024. It is not measured against a benchmark index. Financial markets made further progress during the second quarter, although it was a quarter of two halves, with a sell-off in April being followed by a rebound in the remainder of the period. On the positive side, equities continued to advance, largely thanks to gains by companies exposed to AI which remained the dominant market theme. However, government bonds lost ground as investors priced in fewer rate cuts over the rest of the year, even as the European Central Bank delivered its first rate cut since the pandemic. Meanwhile, geopolitical risk returned to the fore as tensions in the Middle East briefly escalated, driving a spike in energy prices. In June, President Macron's decision to announce a snap legislative election caused a sell-off in French assets while, more broadly, there was evidence of some weakness in global economic data. The main change over the quarter was the move to mitigate risk through a reduction in the size of the return-seeking core. Deteriorating economic data and stubborn inflation warranted a more cautious approach, and we therefore decided to close out the majority of the tactical equity allocation via the S&P 500, Russell 2000, Hang Seng, Nikkei 225 and MSCI Emerging Market indices, which had been purchased to participate in the broadening of the market rally. In a similar vein, within the stabilizing layer, we increased the level of risk mitigation through options on the Eurostoxx 50 and S&P 500 indices. Bond duration (interest rate sensitivity) was largely unchanged over the quarter, with the focus remaining at the shorter end of the curve, which offers an attractive yield. Turning to individual equities, we added a new position Adidas (OTCQX:ADDYY)(OTCQX:ADDDF), the sports footwear and apparel group, which has stumbled in recent years on account of a series of transitory issues. We believe Adidas has an attractive franchise and a new management team which is keen to implement its recovery strategy. We also purchased a holding in Walt Disney (DIS), the media and leisure conglomerate, which, in our view, also has a strong franchise with the majority of the company's value tied to the growing area of consumer experiences through its theme park and consumer businesses. On the other side of the ledger, while we continue to believe in the transformative potential of AI, we took some profit in those stocks which are most exposed to this theme, notably ASML (ASML), Nvidia and Lam Research (LRCX), where expectations had become lofty. We also trimmed positions in oil names Shell and ConocoPhillips (COP) which we believed now fully reflected the geopolitical risk premium. The stabilizing layer detracted. Derivative protection, largely through out-of-the-money put options, represented a cost given rising markets. Physical positions in government bonds were accretive to returns, benefiting from the attractive running yield paid by US Treasuries, while bond futures, which do not benefit from coupon payments, detracted owing to the less favorable pace of monetary policy easing. In contrast, gold surged, particularly, at the beginning of the quarter, as worries around inflation and geopolitics came to the fore. For risk assets such as equities, the gradual nature of the economic slowdown, easing of inflation and 'dovish' central bank narrative have been sufficient to extend rallies. However, initial signs of slowing in the US labor market and deteriorating purchasing managers' indices point to rising risks of an economic growth disappointment, while sentiment and positioning are no longer a tailwind for risk assets. Other risks include the legacy of the build-up in government debt and stubborn levels of inflation. These influences are likely to continue to cause volatility in markets, with the potential to morph into something uglier. We believe this uncertain and unpredictable backdrop necessitates a flexible, dynamic portfolio that can reduce risk as the storm clouds gather, with the potential to subsequently capitalize on opportunities as the market backdrop evolves. Editor's Note: The summary bullets for this article were chosen by Seeking Alpha editors.

BNY Mellon Appreciation Fund, Inc. Q2 2024 Commentary

Another prevalent theme amongst large technology companies is the continued focus and capital expenditure dedicated to expanding artificial intelligence capabilities to meet burgeoning demand. The market has embraced a cautiously bullish outlook, as economic data points to continued growth while the Fed has signaled potential rate cuts in the final quarter of the year. The S&P 500 Index gained 4.3% in a volatile second quarter, closing at new all-time highs as cautious investors regained optimism after digesting a series of economic, inflation, and corporate earnings reports that suggested the U.S. economy continued to track towards a soft landing. The U.S. economy, having grown with consistent resiliency, began to show signs of slowing. New job openings decelerated, wage gains softened, and U.S. Gross Domestic Product growth was revised down, all of which demonstrated the U.S. Federal Reserve's (Fed) monetary tightening policies were effectively cooling the economy. The quarter also provided investors with a slew of inflation data that confirmed the path towards the Fed's 2% target inflation rate remained on its downward trajectory. Various inflation readings early in the quarter showed limited progress in taming inflation, causing concerns of a further prolonged period of high rates. However, towards the end of the quarter, investors welcomed reports that the Fed's preferred inflation reading, the core Personal Consumption Expenditures price index, grew 2.6% in May, slowing from April's 2.8% growth rate. Throughout the first quarter 2024 earnings season, corporations largely beat expectations on both revenue and profitability. However, in contrast to recent quarterly reports, the tone around the consumer shifted from "resilient" to "cautious." Having endured a prolonged period of price increases stemming from the pandemic-era supply chain issues, consumers are now trading down to lower-priced selections and shopping around to get the best deal before making a purchase. The consumer outlook is more stark for companies with meaningful exposure to China, as government stimulus policies announced to-date have been viewed as inadequate in boosting Chinese consumer sentiment. In response to this more "cautious" consumer, corporations are focusing on maintaining profit margins through expense management instead of previous price increase strategies. The BNY Mellon Appreciation Fund underperformed the S&P 500 Index in the second quarter of 2024. Average Annual Total Returns (6/30/24) Another prevalent theme amongst large technology companies is the continued focus and capital expenditure dedicated to expanding artificial intelligence capabilities to meet burgeoning demand. While it remains early days, management teams from many companies across a variety of industries discussed potential monetization opportunities and efficiency gains from deploying AI. Narrow market leadership, geopolitical conflicts, and potentially resurgent inflation remain lingering concerns. However, promising economic, inflation, and earnings results in the second quarter allowed investors to anticipate the beginning of a potential monetary easing cycle, which supported equities. The Fund slightly trailed the Index in the quarter. Within the health care sector, a large positive selection effect outweighed a slight negative allocation effect that stemmed from an overweight allocation. The Fund's holdings across the energy sector held up better in the period than the broader peer group, leading to a positive selection effect that boosted relative performance. Performance of the holdings in the communication services sector resulted in a large positive selection effect that, despite a negative allocation effect, positively contributed to relative performance. Conversely, across the overweighted consumer discretionary and financial sectors, the dual impact of negative allocation and selection effects detracted from relative performance. The holdings in the information technology sector trailed the broader sector, which negatively impacted relative performance. The market has embraced a cautiously bullish outlook, as economic data points to continued growth while the Fed has signaled potential rate cuts in the final quarter of the year. It appears that reports of economic growth, disinflation, and strong corporate earnings has shifted investor focus from last year's recession worries to cautious optimism for the year. While expectations of an economic soft landing have become the consensus, we continue to monitor for any signs of uptick in inflation. The Fund remains focused on identifying companies that we believe have better credit quality, strong balance sheets, pricing power, and the capability to self-fund growth and expansion plans. We believe companies with these characteristics should be better positioned to withstand macroeconomic headwinds. We have been focused on the broader financial implications of a prolonged tightening monetary policy environment and have re-evaluated our holdings through this lens by determining, amongst other considerations, whether stocks in our portfolio are exposed to risk related to capital, labor, or energy requirements. In our view, the businesses in which we invest have less exposure to these risks and may exhibit higher margins and returns on capital, giving them a potential advantage in dealing with changing economic conditions. Editor's Note: The summary bullets for this article were chosen by Seeking Alpha editors.

BNY Mellon Dynamic Total Return Fund Q2 2024 Commentary

The MSCI ACWI rose 2.23% during the quarter on the prospect of policy rate cuts in late 2024 and continued optimism around artificial intelligence. The S&P 500® rose 4.28%, with gains largely concentrated in the information technology and communication services sectors. Eurozone stocks were modestly lower on increased political risk and skepticism that the European Central Bank (ECB) can cut its policy rates further. The ECB lowered interest rates by 25 basis points in early June, though the scope for further cuts may be limited unless inflation moderates. The Federal Reserve (Fed) left interest rates unchanged as officials continued to express concerns about sticky prices, but with inflation measures slowly easing, markets are now pricing in two rates cuts in 2024 while the Fed's latest "dot plot" indicates just one rate cut this year. Sovereign bond prices were mostly lower but recovered later in the quarter on softer economic data and moderating inflation. Gains in industrial and precious metals helped the Bloomberg Commodity Index rise by 2.89%. BNY Mellon Dynamic Total Return Fund (Class A at NAV) returned 2.05% during the second quarter of 2024. Equity index long/short: The equity index long/short component provided the highest return contribution in the quarter, with nearly every position generating positive performance. The strategy's long position in US equities had the largest impact, which benefitted from positive market reaction to softening inflation metrics and strong corporate earnings, particularly from companies benefitting from the AI frenzy. The strategy's long position in Hong Kong equities also contributed to performance as Chinese stocks, in particular tech stocks, rebounded after Beijing signaled support for expansionary economic policies. Directional macro: long exposure to global equities and cash helped during the quarter, as both exposures enjoyed solid returns. Currency long/short: Both the developed market and emerging market currency long/short positions detracted from performance during the quarter. Within emerging markets, a long Mexican peso position detracted as the currency depreciated after Mexico's presidential election. Within developed markets, a short Australian dollar and long Japanese yen position detracted. The short Australian dollar position was driven by our negative macroeconomic outlook, while an undervaluation of the yen drove our long position in the currency. This positioning offset positive performance from a short position in the Swiss franc early in the quarter. Commodity long/short: While the commodity long/short component contributed positively year-to-date, it detracted slightly from performance in the second quarter. Short positions in industrial metals and natural gas detracted as both experienced rallies. Within metals, a short position in copper detracted with the red metal seeing higher prices as mine supply risked tilting the market into a deficit; and after multi-year lows, natural gas rallied in May as managed money participants covered their short positions and eventually flipped long. Overall, our models predict near consensus US gross domestic product (GDP) growth in the next 12 months of 2.2%, inflation that will remain stubbornly higher than the Fed's 2% target, and above-trend earnings growth. However, the return premium for investing in stocks and bonds remains below average, stock bond correlations are challenged, and there is a heightened level of macro uncertainty in the economy with the "higher-for-longer" catchphrase continuing to be relevant. Accordingly, we are not taking a lot of directional risk in the strategy, as evidenced by the net exposure at month end. From the last quarter, the strategy decreased its long options exposure leading to a slight decrease in its global equity exposure, with positioning driven by extended valuations and a US equity risk premium some way below average. It increased its global sovereign bond exposure, largely driven by US Treasuries, after a marginal increase in the term premium and less negative carry. In strategies - such as Dynamic Total Return - where we have the ability to go long/short and invest in alternative sources of return, we are deploying more of our risk budget in those relative value sources of return. Indeed, our equity long/short, bond long/short, and commodity long/short components have all contributed positively to returns year-to-date. Editor's Note: The summary bullets for this article were chosen by Seeking Alpha editors.

BNY Mellon Equity Income Fund Q2 2024 Commentary

Describe the performance of the fund relative to its benchmark during the last three months. 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 US 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-US developed markets, retreated 0.31%, while the MSCI Emerging Markets Index jumped 5.40%. Bifurcation continued in the quarter, as artificial intelligence powered US growth stocks, which significantly outperformed their value peers, while small caps lagged and underperformed their large-cap counterparts. In the US, 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 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 US Treasury yields experienced a spike following weak auction demand, the 10-year note ended the quarter roughly where it began. The US dollar ended the quarter higher. Communication Services and Technology securities were some of the strongest performers over the quarter. Industrials and Materials securities were the worst performers for the quarter. The BNY Mellon Equity Income Fund outperformed the S&P 500® Index (the benchmark) benchmark index during the quarter, based on gross-of-fees performance. On a sector basis, security selection in technology and financials were among the positive contributors, offset by weaker selection in energy and health care. The fund maintained a modest overweight to consumer staples, energy, and communication services. The Fund maintained a modest underweight to consumer discretionary, and health care. Dividend yield, momentum, and quality characteristics were rewarded during the quarter. The market penalized high beta, earnings yield, and securities with less expensive valuation characteristics. We continue to expect 2024 to be a year of transition to more normalized economic leadership, even as markets adjust to a world of higher interest rates and political changes. Short-term interest rates are likely to remain at higher levels than we've seen since the global financial crisis. Even as economic growth slows, we expect corporate earnings to reaccelerate before embarking on the next phase of expansion. The portfolio is tilted into less expensive, higher quality securities that also display positive earnings momentum. We believe the portfolio is well positioned to benefit from the current market environment. Our systematic approach to evaluating securities and building portfolios allows us to create an investment process that participates in rising equity markets and helps protect capital during times of stress in the marketplace. The fund is comprised of companies with stable above average dividends that also exhibit attractive valuation characteristics through a diversified set of factors. Overall sector deviations versus the S&P 500® remain fairly tight, with the largest overweight coming from energy and the largest underweight in consumer discretionary. In our risk-control category, we maintain an overall allocation similar to the benchmark. The fund will also seek out non-dividend paying companies that may help manage portfolio risk or have the potential for dividend payments in the future. Editor's Note: The summary bullets for this article were chosen by Seeking Alpha editors.