Jon Bell, Portfolio Manager of Global Equity Income at Newton Investment Management¹ explores the themes of patient capital and longevity, and why he believes the Global Equity Income fund could provide solutions to their challenges.

At Newton, we believe that, given its focus on income, the BNY Mellon Global Equity Income fund is an attractive investment for both the accumulation of wealth and for decumulation in retirement.

Over the long history of equity markets, it is dividend compounding which has been key to returns as it allows investors to benefit from the power of compounding. As Albert Einstein said: “Compound interest is the eighth wonder of the world. He who understands it, earns it... he who doesn’t... pays it”. Income, dividends and the reinvestment and compounding of those dividends, have always played a key role in any long-term investor’s total returns.  This is illustrated in the chart below:

The long-term returns from US equity markets illustrate the influence of dividends on wealth creation. To the long-term investor, attractive equity returns are derived not simply from capital appreciation, but also from the receipt of dividends, and critically from the accumulation of shares as a result of the reinvestment of those dividends.

The compounding of investment returns via income reinvestment can be a powerful driver of equity returns over the long term. The chart illustrates that capital gains accounted for the growth of US$1 invested in US equities at the beginning of 1900 to US$575 at the end of 2022.

However, the additional effect of income and its reinvestment turned that original investment of US$1 into almost US$73,000. Accordingly, dividends and their reinvestment accounted for 99% of US equity returns over the period.

In addition, the middle section of the chart highlights the relative consistency of dividends when compared to the volatility of capital returns. The fact that dividends are key to the accumulation of wealth and a much more reliable source of return than capital appreciation has important implications for retirement planning.

Equity income can provide an asymmetric return profile

Past performance is not a guide to future performance.

In the chart above, the darker bars show the relative performance of the strategy in quarters when markets are rising, the lighter bars are the relative performance in quarters when markets were falling. Typically, the strategy has failed to keep up with rising markets – at least in the period of zero interest rates and quantitative easing following the financial crisis – but it is the job it has done of protecting capital in falling markets which has been key to the compounding up of the excess return, shown in orange on this chart.

I would make two further observations:

1. The strategy was launched in 2005, prior to the financial crisis, and in those early years it outperformed rising markets. It is not the case that income stocks can only outperform falling markets, but key once again is their relative defensiveness when markets are week.

2. The recent performance of the strategy has been very volatile in relative terms. However, the absolute returns have been far less volatile. The strategy has navigated well the wild swings in market leadership that we have seen since we returned to a more normal interest rate environment in 2022, as illustrated by the volatility and drawdown statistics below:
 

Why does this matter?

The answer is longevity. An average retirement will last 20+ years, so there’s a decent probability of living 30+ years in retirement. Life expectancy has risen to 84.26 in 2025 from 71.45 in 1970, according to UN data. UN projections are that it will have risen to over 87 by 2050. The Italian Actuarial Profession working group on Pensioners Life Expectancy at age 65 shows that those turning 65 in 2030 are expected to live on average 21.7 years for men and 25 years for women. So, in both cases their investment horizon at pensionable age is at or above 20 years.

This increase in life expectancy means you are likely to face bouts of high inflation for which it might make sense to hold real assets, i.e. assets that help to protect you from the impact of inflation.

Longer retirement means investment savings having to do more work for longer to uplift standard of living (which is only basic from state pension).

In my opinion, the real assets need to be equities – and preferably global because Italian growth has been low. Dividend paying equities can be especially useful as well capitalised companies with strong market positions and strong cash generation are able to grow their dividends in periods of higher inflation, thus generating a higher level of yield. In April 2025, the BNY Mellon Global Equity Income Fund had a yield of 3.6% and has a track record of growing annual distributions.

Finally, if you are living on an investment pot (rather than trying to accumulate wealth) then it could be sensible to have an investment strategy that both provides income and copes well with regular drawdowns – this means you need “bouncebackability” to avoid sequencing risk, the risk of having to sell investments to generate income after the market has fallen.

The provision of natural income can help with this, as it could alleviate the need to sell any units at all.  Equity income strategies embody “bouncebackability” as they tend to fall less in crashes and recover sooner – thanks to the underlying stocks being popular in early-recovery phases.

World in transition

Moving to the underlying investments within the portfolio and how they are impacted by longevity. The BNY Mellon Global Equity Income strategy follows a thematic process. Our themes are the long-term structural drivers of change in markets and economies and are designed to focus our investment process on the long rather than the short-term. It is very easy to get distracted, particularly in volatile markets, with volatile geopolitics, but it is critical for the creation of long-term value to look beyond the short-term noise. The macro themes highlight an opportunity for equity income. For the reasons shown below, the world is undergoing a very important transition from deflation to inflation:

This means that the era of free money is over (when growth stocks thrived and dominated market returns). Now that we are in what’s widely considered a more “normal” environment, we believe that we will return to the long-term fundamentals of equity investing.

Of note is that despite the recent relative volatility in performance from the strategy, it is ahead of benchmark since the beginning of 2022 when interest rates began the process of returning to normal.

This is despite the strong performance from growth stocks in 2023 and 2024 – which drove concentration and valuation risk in equity markets to extreme levels – whilst leaving income stocks as cheap as they have been since the last NASDAQ bubble of the late 1990’s. Despite the rotation that we have seen in 2025, that valuation discount remains, and the prospects for income stocks from a macro perspective is positive.

The micro thematic backdrop
 

Newton’s key micro themes:
 

Internet of things/
Smart everything   – pace of technological change
 

Natural capital       – Energy transition 
 

Picture of health    – Impact of demographics on healthcare systems
                                         Innovation and healthier lifestyles            
 

The “picture of health” micro theme highlights the impact of demographics, and longevity in particular, on healthcare systems. Furthermore, it explores the need for innovation to help the payers for healthcare cope with the rising costs given that as people age, their demand for healthcare increases.

The fund has 18% of its assets invested in the healthcare sector, compared to a benchmark weighting of 10.4%, and has never been as overweight as it is as at April 2025.

At the turn of the year, the sector was trading at multi-year lows in valuation terms as fears over the US administration’s healthcare agenda drove stock underperformance. We have viewed this as an opportunity to increase exposure to an area with strong thematic support to the extent that it’s both the largest overweight in the portfolio, but also the largest relative position that we have had in healthcare in the strategy’s near 20-year history.

The overall weighting is split between 14% in pharmaceuticals and 4% in healthcare equipment.

A second sector which benefits from longevity is life insurance, and again the fund is overweight relative to its benchmark with holdings in the US and Asia. As populations age and become wealthier, they buy more life insurance products, and many life insurance markets are seeing significant demand growth as GDP (gross domestic product) per capita rises. Again, the valuation is attractive because of the uncertainty surrounding the state of the Chinese economy, but recent results indicate that underlying demand remains strong.

In conclusion, on the investment side 5 of the top 10 positions in the portfolio are directly linked to the longevity theme. More broadly, I believe the BNY Mellon Global Equity Income Fund is an ideal vehicle for retirement.

It is designed to provide real income with the potential for growth in that income, it exhibits lower volatility than the market and has also experienced lower drawdowns, helping those in retirement to weather the inevitable volatility in equity markets while helping to provide the assurance that they won’t run out of money to fund their retirement.

Past performance is not a guide to future performance. 
 

The value of investments can fall.

Investors may not get back the amount invested. Income from investments may vary and is not guaranteed. The return of your investment may increase or decrease as a result of currency fluctuations if your investment is made in a currency other than that used in the past performance calculation.

BNY Mellon Global Equity Income Fund

Investment objective To generate annual distributions and to achieve long-term capital growth by investing predominantly in equity and equity-related global securities.

Benchmark The Fund will measure its performance against the FTSE World TR Index (the "Benchmark"). The Fund is actively managed, which means the Investment Manager has absolute discretion to invest outside the Benchmark subject to the investment objective and policies disclosed in the Prospectus. While the Fund's holdings may include constituents of the Benchmark, the selection of investments and their weightings in the portfolio are not influenced by the Benchmark. The investment strategy does not restrict the extent to which the Investment Manager may deviate from the Benchmark.

Risks

Geographic Concentration Risk: Where the Fund invests significantly in a single market, this may have a material impact on the value of the Fund. Objective/Performance Risk: There is no guarantee that the Fund will achieve its objectives.

Derivatives Risk: Derivatives are highly sensitive to changes in the value of the asset from which their value is derived. A small movement in the value of the underlying asset can cause a large movement in the value of the derivative. This can increase the sizes of losses and gains, causing the value of your investment to fluctuate. When using derivatives, the Fund can lose significantly more than the amount it has invested in derivatives.

Charges to Capital: The Fund takes its charges from the capital of the Fund. Investors should be aware that this has the effect of lowering the capital value of your investment and limiting the potential for future capital growth. On redemption, you may not receive back the full amount you initially invested.

Share Class Hedging Risk: The hedging strategy is used to reduce the impact of exchange rate movements between the share class currency and the base currency. It may not completely achieve this due to factors such as interest rate differentials.

Share Class Currency Risk: Where a share class is denominated in a different currency from the base currency of the Fund, changes in the exchange rate between the share class currency and the base currency may affect the value of your investment.

Environmental, Social and Governance (ESG) Investment Approach Risk: The Fund follows an ESG investment approach. This means factors other than financial performance are considered as part of the investment process. This carries the risk that the Fund's performance may be negatively impacted due to restrictions placed on its exposure to certain sectors or types of investments. The approach taken may not reflect the opinions of any particular investor. In addition, in following an ESG investment approach, the Fund is dependent upon information and data from third parties (which may include providers for research reports, screenings, ratings and/or analysis such as index providers and consultants). Such information or data may be incomplete, inaccurate or inconsistent.

Counterparty Risk: The insolvency of any institutions providing services such as custody of assets or acting as a counterparty to derivatives or other contractual arrangements, may expose the Fund to financial loss.

Currency Risk: This Fund invests in international markets which means it is exposed to changes in currency rates which could affect the value of the Fund. Emerging Markets Risk: Emerging Markets have additional risks due to less-developed market practices.

Market Capitalisation Risk: Investments in the securities of small to medium-sized companies (by market capitalisation) may be riskier and less liquid (i.e. harder to sell) than large companies. This means that their share prices may have greater fluctuations.

Shanghai-Hong Kong Stock Connect and/or the Shenzhen-Hong Kong Stock Connect ("Stock Connect") risk: The Fund may invest in China A shares through Stock Connect programmes. These may be subject to regulatory changes and quota limitations. An operational constraint such as a suspension in trading could negatively affect the Fund's ability to achieve its investment objective.

For a full list of risks applicable to this fund, please refer to the Prospectus or other offering documents.

Please refer to the prospectus and the KIID before making any investment decisions. Documents are available in English and an official language of the jurisdictions in which the Fund is registered for public sale. Go to bny.com/investments.

¹Investment Managers are appointed by BNY Mellon Investment Management EMEA Limited (BNYMIM EMEA), BNY Mellon Fund Management (Luxembourg) S.A. (BNY MFML) 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, BNY MFML or the BNY Mellon funds.