The BNY Mellon Efficient U.S. Fallen Angels Beta Fund aims to generate alpha with comparable risk to the benchmark by harvesting structural mispricing in the Fallen Angels market.1 The Fund follows an innovative investment approach designed to access Fallen Angels at minimal cost whilst overweighting attractive issues and avoiding those with unattractive risk-return features or material ESG issues.

¹A Fallen Angel corporate bond is one that has started out as a member of the investment grade universe (typically rated BBB) but has dropped down into the high yield universe (typically rated BB).
 

The value of investments can fall. Investors may not get back the amount invested. Income from investments may vary and is not guaranteed.

U.S. Fallen Angels have produced the highest return across major market since index inception in 2004. They have consistently outperformed the broad high yield index with lower drawdown and stronger credit quality. Despite this, few dedicated Fallen Angel strategies exist. Those that do must overcome high transaction costs, low dealer inventory and a typically narrow universe to extract returns.

Annualised return vs. risk for major asset classes (Mar 2005 – June 2021)

Past performance is not a guide to future performance.

The Fund will measure its performance against Bloomberg Barclays US HY Fallen Angel 3% Cap Total Return Index Value Unhedged (the “Benchmark”). The Investment Manager will use the Benchmark to construct the investment universe. The Fund is actively managed and does not seek to replicate the full constituents of the Benchmark. The Investment Manager has limited discretion to invest outside the Benchmark where the relevant security meets the requirements of and is expected to be included in the Benchmark in the future. The majority of the Fund’s holdings will be constituents of the Benchmark and as a result the Fund will be similar in its currency, duration as well as sector exposures and credit quality profile, subject to investment constraints. However the Investment Manager will not seek to reflect the Benchmark’s maturity profile. The investment strategy provides similar volatility to the Benchmark over the medium to long-term.

The BNY Mellon Efficient U.S. Fallen Angels Beta Plus Fund targets the full risk premium of the asset class through a dual focus on alpha capture and value preservation. The starting point is the Bloomberg Barclays US HY Fallen Angel 3% Cap TR Index. A tilt towards recent downgrades is applied in order to capture the historically higher return of this segment. Bonds with undesirable risk-return characteristics are excluded, including those exhibiting rapidly deteriorating fundamentals and older downgrades with long duration. Application of the firm’s proprietary credit model allows over and under-priced securities to be identified and weighted accordingly whilst strict investment parameters limit risk. Sourcing issues are mitigated through Insight’s innovative credit portfolio trading technology, enabling the portfolio to access a large number of bonds in one transaction and at minimal cost. Finally, negative ESG screening is applied to filter out undesirable issuers. The result is a diversified portfolio with a similar level of risk to the benchmark and a higher return target.

Changes in interest rates and inflation risk: investments in bonds/money market securities are affected by interest rates and inflation which may negatively affect the value.