Higher inflation, rising interest rates and greater uncertainty have made investing more challenging. For bond investors, simply owning bonds may no longer be enough to successfully diversify risk.
How bonds are selected and managed can influence how exposed a portfolio is during a market downturn. An experienced, active management approach can help turn volatility into an opportunity for growth.
Looking beyond the market index
Bond indices are usually weighted according to the amount of debt issued. As a result, the biggest borrowers often make up the largest share of the index but are not necessarily the highest-quality issuers. Unconstrained active strategies are not required to follow these index weights, allowing managers to select investments they believe offer the best balance between risk and reward.
Finding opportunities across the bond market
An active manager can adjust a portfolio as conditions change, helping to spread risk, reduce reliance on any one area of the market and access opportunities across the full universe of bond investments, including:
- Government bonds
- Corporate bonds
- Inflation-linked bonds
- Bonds issued by developing countries
- Investments backed by assets such as mortgages or loans.
Government bonds may offer stability during weaker economic periods, while corporate bonds may perform better when businesses are growing. Bonds that are due to be repaid sooner are typically less affected by changes in interest rates than bonds that are due to be repaid further in the future. Other bonds can help protect against inflation.
Managing interest rate changes
Rising interest rates have been one of the biggest challenges for bond investors in recent years. This was evident after the pandemic when inflation surged and interest rates rose sharply, leading to unusually large losses in many bond markets.
Rather than simply participating in market movements, an active manager can adjust portfolios to reflect their views. If an active manager expects rates to keep rising, they can reduce exposure to the bonds that are most sensitive to rate changes. If they believe rates may start to fall, they can increase exposure to areas that could benefit.
Looking ahead, not just reacting
Experienced managers recognise the world has changed. This means that risk management requires looking beyond what has happened in the past. It requires rigorous and continuous assessment of the economy, financial markets and bond issuers to identify risks and opportunities early.
At BNY Investments’ fixed income specialist, Insight Investment, teams track developments across global bond markets every day, assessing how factors such as inflation, economic growth and government policy may affect future returns. Our data-driven approach helps us to identify changing conditions early and to alter portfolio positions accordingly.
The aim is not to predict every market move. It is to make informed decisions that help investors navigate uncertainty over the long term.
Building a more resilient portfolio
A resilient bond portfolio should do more than provide income. It should be able to adapt to changing conditions while managing risk by providing:
- Freedom to access a wide range of bond opportunities
- Flexibility to avoid less attractive investments
- The ability to seek better value, from opportunities identified both within and beyond the market benchmark
- Greater control over the portfolio’s exposure to changing interest rates
- Ongoing monitoring of risks and opportunities as they develop.
These advantages can help portfolios withstand market stress while staying focused on long-term goals.
The Insight approach
Markets and economies can change quickly. In this environment, flexibility and active decision-making can be valuable.
We believe resilient bond investing requires an approach that identifies opportunities, manages risk and adapts as conditions change.
To see how these principles are applied in practice, explore the Responsible Horizons UK Corporate Bond Fund and BNY Strategic Bond Fund, including the latest fact sheets and performance data, available at link.
The value of investments and the income received can fall as well as rise and investors may not get back the original amount invested.
Responsible Horizons UK Corporate Bond Fund
Investment objective
To generate a return through a combination of income and capital returns, whilst taking environmental, social and governance ("ESG") factors into account. The Fund targets the outperformance of the S&P iBoxx GBP Collateralized & Corporate Index after fees over any rolling three-year period (meaning a period of three years, no matter which day you start on). However, performance is not guaranteed and a capital loss may occur.
Performance Benchmark
The Fund will measure its performance against the S&P iBoxx GBP Collateralized & Corporate Index (the "Benchmark") after fees over any rolling three-year period (meaning a period of three years, no matter which day you start on). The Fund will use S&P iBoxx GBP Collateralized & Corporate Index as a target for the purposes of monitoring the risk taken in the Fund and the UK Investment Association's Sterling Corporate Bond NR Sector average as an appropriate comparator because it includes a broad representation of similar Sterling denominated funds that invest in corporate bonds. The Fund is actively managed, which means the Investment Manager has discretion to invest outside the Benchmarks, subject to the investment objective and policy as disclosed in the Prospectus.
On 1 April 2021, the Fund's name was changed from the BNY Mellon Corporate Bond Fund to the Responsible Horizons UK Corporate Bond Fund. The Fund's investment objective, investment policy and benchmark also changed at the same time. The past performance shown prior to this date was achieved under circumstances that no longer apply and is not comparable to performance achieved after this date.
Key Risks associated with this Fund
Objective/Performance Risk: There is no guarantee that the Fund will achieve its objectives.
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.
Geographic Concentration Risk: Where the Fund invests significantly in a single market, this may have a material impact on the value of the Fund.
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.
Changes in Interest Rates & Inflation Risk: Investments in bonds/money market securities are affected by interest rates and inflation trends which may negatively affect the value of the Fund.
Credit Ratings and Unrated Securities Risk: Bonds with a low credit rating or unrated bonds have a greater risk of default. These investments may negatively affect the value of the Fund.
Credit Risk: The issuer of a security held by the Fund may not pay income or repay capital to the Fund when due.
CoCo's Risk: Contingent Convertible Securities (CoCo's) convert from debt to equity when the issuer's capital drops below a pre-defined level. This may result in the security converting into equities at a discounted share price, the value of the security being written down, temporarily or permanently, and/or coupon payments ceasing or being deferred.
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.
BNY Strategic Bond Fund
Investment Objective
To generate a return through a combination of income and capital returns, whilst taking environmental, social and governance ("ESG") factors into account.
Performance Benchmark
The Fund will measure its performance against the Investment Association Sterling Strategic Bond Sector as a comparator benchmark (the "Benchmark"). The Fund will use the Benchmark as an appropriate comparator because it represents a broad range of similar Sterling denominated bond funds that invest in corporate bonds. The Fund is actively managed, which means the Investment Manager has discretion over the selection of investments, subject to the investment objective and policies as disclosed in the Prospectus.
Key Risks associated with this Fund
Objective/Performance Risk: There is no guarantee that the Fund will achieve its objectives.
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.
Geographic Concentration Risk: Where the Fund invests significantly in a single market, this may have a material impact on the value of the Fund.
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.
Changes in Interest Rates & Inflation Risk: Investments in bonds/money market securities are affected by interest rates and inflation trends which may negatively affect the value of the Fund.
Credit Ratings and Unrated Securities Risk: Bonds with a low credit rating or unrated bonds have a greater risk of default. These investments may negatively affect the value of the Fund.
Credit Risk: The issuer of a security held by the Fund may not pay income or repay capital to the Fund when due.
Emerging Markets Risk: Emerging Markets have additional risks due to less-developed market practices.
CoCo's Risk: Contingent Convertible Securities (CoCo's) convert from debt to equity when the issuer's capital drops below a pre-defined level. This may result in the security converting into equities at a discounted share price, the value of the security being written down, temporarily or permanently, and/or coupon payments ceasing or being deferred.
Responsible Investing Risk: The investment policy for this Fund places restrictions on its exposure to certain sectors or types of investments to reflect its responsible investing approach. The Fund's performance may be negatively impacted due to these restrictions in comparison to funds which do not have these restrictions. The Fund will not engage in securities lending activities and, therefore, may forego any additional returns that may be produced through such activities.
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.
IMPORTANT INFORMATION
For Professional Clients only.
This is a financial promotion.
Please refer to the prospectus, KID/KIID or KFS where applicable and other fund documents for a full list of risks and before making any investment decisions. Documents are available in English and in selected local languages where the fund is registered. Go to bny.com/investments.
BNY Investments is the brand name for the investment management business of BNY and its investment firm affiliates worldwide. BNY is the corporate brand of The Bank of New York Mellon Corporation and may be used to reference the corporation as a whole or its various subsidiaries generally.
Any views and opinions are not investment advice or a research recommendation.
BNY Mellon Investment Funds is an open-ended investment company with variable capital (ICVC) with limited liability between sub-funds. Incorporated in England and Wales: registered number IC27. The Authorised Corporate Director (ACD) is BNY Mellon Fund Managers Limited (BNY MFM), incorporated in England and Wales: No. 1998251. Registered address: BNY Mellon Centre, 160 Queen Victoria Street, London EC4V 4LA. Authorised and regulated by the Financial Conduct Authority.
Issued in the UK by BNY Mellon Investment Management EMEA Limited, BNY Mellon Centre, 160 Queen Victoria Street, London EC4V 4LA. Registered in England No. 1118580. Authorised and regulated by the Financial Conduct Authority.
2059777 Exp 31 March 2027
