Cast your mind back to 31 August 1989. In the UK, Princess Anne announced her separation from Captain Mark Phillips. AC Milan and Netherlands striker Marco Van Basten was the winner of the Ballon D'Or. On the US hot 100 billboard chart, Richard Marx's "Right Here Waiting (For You)" was number 1. On the album charts Gloria Estefan's "Cuts Both Ways" held top spot. Less than three months later the Berlin Wall would come down, ushering in the end of Cold War and the collapse of the Soviet Union.
31 August 1989 is also the inception date of the Mellon Dynamic US Equity strategy. For Mellon's Claire Corry, the extraordinary staying power of the strategy is testimony to two things: first, the strength of its unifying idea: that the pursuit of an efficient portfolio comprised of equity and bond allocations combined with an equity risk profile can produce outperformance relative to an equity benchmark, and second, its ability to-date to consistently deliver on this promise.
"It's the strategy's ability to effectively increase and decrease its allocation to equities, bonds and cash that's its defining characteristic," she says. "It's helped us achieve returns in excess of the comparative index on a three-year, five-year, 10-year and since-inception basis."3
At the heart of the strategy is a proprietary research-driven approach that combines bottom-up valuation processes with a top-down macro overlay. Taken together, the two elements indicate expected returns, correlation and risk and thus the most efficient combined portfolio of bonds and equities. "Add in the ability to underweight and overweight the S&P500 – and to go long and short US Treasuries – and the track record shows we've been able to achieve equivalent volatility to equities but with a higher return," says Corry.
To date, the strategy has also worked in offering downside protection – in Corry's words: "It does comparatively well in a risk-off scenario, as the defensive nature of US Treasuries helps protectthe portfolio."
Up/down analysis versus the S&P500 from inception (31 August 1989) to 31 December 2017 illustrates the point. In that time period the strategy posted an average monthly increase of 3.3% versus 3.1% from the comparative index when the index experienced positive performance. During negative periods, the strategy lost only 3.1% on average each month versus 3.5% from the index.4
Peer group ranking tells a similar story: The strategy was ranked in the top 1% among its peers in the eVestment US Large Cap Core Equity Universe over 3, 5, 7 and 10 years.5
Observes Corry: "It's widely accepted that generating alpha in the highly efficient US market is incredibly difficult. Indeed, traditional active approaches have tended to exhibit positive correlation to one another. To achieve excess returns in US large cap equity, investors need a different approach. Our view is that, with its nearly three-decade track record of outperformance, the Dynamic US Equity strategy does exactly that."
1 Investment Managers are appointed by BNY Mellon Investment Management EMEA Limited (BNYMIM EMEA) or affiliated fund operating companies to undertake portfolio management activities in relation to contracts for products and services entered into by clients with BNYMIM EMEA or the BNY Mellon funds.
2 Mellon was formed on 31 January 2018, through the merger of The Boston Company and Standish into Mellon Capita. Effective 2 January 2019, the combined firm was renamed Mellon Investments Corporation.
3 Comparative index is the S&P500 Index. Source: Mellon as at 31 December 2018. Performance calculated as total return, income reinvested, gross of fees, in US$.
4 Source: BNY Mellon and Bloomberg as at 31 December 2017. The strategy adheres to the same investment approach as the BNY Mellon Dynamic US Equity Fund. Performance calculated as total return, income reinvested, gross of fees in US$. Up and down months are defined as periods when the S&P500 Index experienced a positive or negative return respectively.
5 Source: eVestment. Performance calculated as total return, income reinvested, gross of fees, in US$. Fees and charges apply and can have a material effect on the performance of your investment. Percentile ranks are based on the respective performance statistics shown for applicable periods. The eVestment US Large Cap Equity Universe is compiled by eVestment Alliance based on the product characteristics submitted by the participating investment managers (each manager is counted as an observation). eVestment. eVestment Alliance, LLC and its affiliated entities (collectively, "eVestment") collect information directly from investment management firms and other sources believed to be reliable, however, eVestment does not guarantee or warrant the accuracy, timeliness, or completeness of the information provided and is not responsible for any errors or omissions. Performance results may be provided with additional disclosures available on eVestment's systems and other important considerations such as fees that may be applicable.
Past performance is not a guide to future performance.
The value of investments can fall. Investors may not get back the amount invested. INV01621 Exp 3 July 2019. Published as at 3 April 2019.Back to main page
Mellon was formed on 31 January 2018, through the merger of The Boston Company and Standish into Mellon Capital. Effective 2 January 2019, the combined firm was renamed Mellon Investments Corporation.