BNY Mellon Global Real Return - A DRRAX

BNY Mellon Real Return remains a decent choice for investors seeking a competitive and risk-conscious dynamic multi-asset strategy. Portfolio complexity has gradually increased, though, and the process demands deep and broad capabilities to navigate the mandate’s vast opportunity set, leaving significant room for execution. Following the sudden passing of the Real Return strategy’s team leader Suzanne Hutchins in December 2022, the Real Return team was reorganized under the direction of co-portfolio managers Andy Warwick and Aron Pataki. The two are supported by three additional managers, including Philip Shucksmith and Matt Brown, who co-lead the sustainable version of this strategy, as well as four more members. This team's stability, broad skill-set, and complementary expertise should help in managing this wide-ranging, unconstrained process that combines elements of risk management, dynamic asset allocation, and security selection. The team runs the strategy collegially, with key inputs from Newton's research platform. The merger between Mellon Investments' equity and multi-asset teams with Newton in September 2021 has expanded the scope and breadth of supporting resources relative to prior years but has also brought instability in its ranks. Given the relevance of security selection, this bears watching, but at this stage, we remain confident in the broad group's capabilities. The strategy targets a return of 4% gross annualized above cash rates over five years. Beyond equities, the team uses other asset classes pragmatically, including government bonds, precious metals, and derivatives for both portfolio hedging and managing overall risk exposure. Portfolio breadth has further increased in recent years as the team shifted capital to alternative assets to use as a strategic diversifier. The team members broadly classify assets as either "return-seeking core" or "stabilizing," shifting the balance tactically between the two depending on their macro views. All in all, the managers are unafraid to make bold and unconventional asset-allocation calls within a risk-conscious framework. The team’s track record on its tactical bets is somewhat mixed. On top, recent missteps in the strategy’s hedging sleeve as well as broad weakness in its stabilizing bucket have impaired results, which have fallen behind the fund’s stated goal. While the strategy’s performance path has room for improvement, its emphasis on capital preservation should continue to provide better downside protection relative to peers.