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The market has embraced a cautiously bullish outlook, as economic data points to continued growth while the Fed has signaled potential rate cuts in the final quarter of the year.
Market Review
The S&P 500 Index gained 4.3% in a volatile second quarter, closing at new all-time highs as cautious investors regained optimism after digesting a series of economic, inflation, and corporate earnings reports that suggested the U.S. economy continued to track towards a soft landing.
The U.S. economy, having grown with consistent resiliency, began to show signs of slowing. New job openings decelerated, wage gains softened, and U.S. Gross Domestic Product growth was revised down, all of which demonstrated the U.S. Federal Reserve’s (Fed) monetary tightening policies were effectively cooling the economy. The quarter also provided investors with a slew of inflation data that confirmed the path towards the Fed’s 2% target inflation rate remained on its downward trajectory. Various inflation readings early in the quarter showed limited progress in taming inflation, causing concerns of a further prolonged period of high rates. However, towards the end of the quarter, investors welcomed reports that the Fed’s preferred inflation reading, the core Personal Consumption Expenditures price index, grew 2.6% in May, slowing from April’s 2.8% growth rate.
Throughout the first quarter 2024 earnings season, corporations largely beat expectations on both revenue and profitability. However, in contrast to recent quarterly reports, the tone around the consumer shifted from “resilient” to “cautious.” Having endured a prolonged period of price increases stemming from the pandemic-era supply chain issues, consumers are now trading down to lower-priced selections and shopping around to get the best deal before making a purchase. The consumer outlook is more stark for companies with meaningful exposure to China, as government stimulus policies announced to-date have been viewed as inadequate in boosting Chinese consumer sentiment. In response to this more “cautious” consumer, corporations are focusing on maintaining profit margins through expense management instead of previous price increase strategies.
Performance Summary
The BNY Mellon Appreciation Fund underperformed the S&P 500 Index in the second quarter of 2024.
Average Annual Total Returns (6/30/24)
|
Share Class / Inception Date |
3 Month |
YTD |
1 Year |
3 Year |
5 Year |
10 Year |
|
Investor Shares (NAV) / 01/18/84 |
3.74% |
10.69% |
17.67% |
6.90% |
14.24% |
11.39% |
|
Class I (NAV) / 08/31/16 |
3.79% |
10.80% |
17.95% |
7.14% |
14.50% |
11.59% |
|
S&P 500 Index |
4.28% |
15.29% |
24.56% |
10.01% |
15.05% |
12.86% |
|
The performance data quoted represents past performance, which is no guarantee of future results. Share price and investment return fluctuate, and an investor’s shares may be worth more or less than original cost upon redemption. Current performance may be lower or higher than the performance quoted. Performance for periods less than 1 year is not annualized. Go to im.bnymellon.com for the fund’s most recent month-end returns. Returns assume the reinvestment of dividends and capital gains, if any. |
|
Total Expenses (6/30/24) |
||
|
Share Class |
Gross 1 |
Net 2 |
|
Investor Shares |
0.89% |
0.89% |
|
Class I |
0.66% |
0.66% |
|
[1]Gross expenses is the total annual operating expense ratio for the fund, before any fee waivers or expense reimbursements. [2]Net Expenses is the total annual operating expense ratio for the fund, after any applicable fee waivers or expense reimbursements. The Net Expenses is the actual fund expense ratio applicable to investors. Not all classes of shares may be available to all investors or through all broker-dealer platforms. |
Market Review (continued)
Another prevalent theme amongst large technology companies is the continued focus and capital expenditure dedicated to expanding artificial intelligence capabilities to meet burgeoning demand. While it remains early days, management teams from many companies across a variety of industries discussed potential monetization opportunities and efficiency gains from deploying AI. Narrow market leadership, geopolitical conflicts, and potentially resurgent inflation remain lingering concerns. However, promising economic, inflation, and earnings results in the second quarter allowed investors to anticipate the beginning of a potential monetary easing cycle, which supported equities.
|
Top 10 Holdings (6/30/24) |
|
|
Microsoft Corporation |
9.97% |
|
Apple Inc. |
7.27% |
|
Novo Nordisk A/S Sponsored ADR |
5.56% |
|
Amazon.com, Inc. |
5.54% |
|
Alphabet Inc. Class C |
4.66% |
|
ASML Holding NV ADR |
3.61% |
|
Visa Inc. Class A |
3.54% |
|
Texas Instruments Incorporated |
3.23% |
|
UnitedHealth Group Incorporated |
3.19% |
|
Chevron Corporation |
2.82% |
|
The holdings listed should not be considered recommendations to buy or sell a security. Large concentrations can increase share price volatility. |
|
Performance Review
The Fund slightly trailed the Index in the quarter. Within the health care sector, a large positive selection effect outweighed a slight negative allocation effect that stemmed from an overweight allocation. The Fund’s holdings across the energy sector held up better in the period than the broader peer group, leading to a positive selection effect that boosted relative performance. Performance of the holdings in the communication services sector resulted in a large positive selection effect that, despite a negative allocation effect, positively contributed to relative performance. Conversely, across the overweighted consumer discretionary and financial sectors, the dual impact of negative allocation and selection effects detracted from relative performance. The holdings in the information technology sector trailed the broader sector, which negatively impacted relative performance.
Top Contributors
The top contributors to relative performance include Microsoft (MSFT), Apple (AAPL), Novo Nordisk (NVO), Alphabet (GOOG), and Nvidia (NVDA).
Top Detractors
The top detractors from relative performance include Visa (V), LVMH (OTCPK:LVMHF), Canadian Pacific Kansas City (CP), Sherwin-Williams (SHW), and Nike (NKE).
Market Outlook
The market has embraced a cautiously bullish outlook, as economic data points to continued growth while the Fed has signaled potential rate cuts in the final quarter of the year. It appears that reports of economic growth, disinflation, and strong corporate earnings has shifted investor focus from last year’s recession worries to cautious optimism for the year. While expectations of an economic soft landing have become the consensus, we continue to monitor for any signs of uptick in inflation.
The Fund remains focused on identifying companies that we believe have better credit quality, strong balance sheets, pricing power, and the capability to self-fund growth and expansion plans. We believe companies with these characteristics should be better positioned to withstand macroeconomic headwinds. We have been focused on the broader financial implications of a prolonged tightening monetary policy environment and have re-evaluated our holdings through this lens by determining, amongst other considerations, whether stocks in our portfolio are exposed to risk related to capital, labor, or energy requirements. In our view, the businesses in which we invest have less exposure to these risks and may exhibit higher margins and returns on capital, giving them a potential advantage in dealing with changing economic conditions.
|
Investors should consider the investment objectives, risks, charges and expenses of a mutual fund carefully before investing. To obtain a prospectus, or a summary prospectus, if available, that contains this and other information about a fund, contact your financial professional. For more information, call 1-800-373-9387 or visit im.bnymellon.com. Read the prospectus carefully before investing. Investors should discuss with their financial professional the eligibility requirements for Class I shares, which are available only to certain eligible investors, and the historical results achieved by the fund’s respective share classes. Past performance is no guarantee of future results. Risks Equities are subject to market, market sector, market liquidity, issuer, and investment style risks, to varying degrees. Investing in foreign denominated and/or domiciled securities involves special risks, including changes in currency exchange rates, political, economic, and social instability, limited company information, differing auditing and legal standards, and less market liquidity. These risks generally are greater with emerging market countries. Index Definitions The Standard & Poor’s 500® Composite Stock Price Index is a widely accepted, unmanaged index of overall U.S. stock market performance. An investor cannot invest directly in any index. Definitions NAV is Net Asset Value. YTD is Year to Date. FDIC is Federal Deposit Insurance Corp. Artificial intelligence, the ability of a digital computer-controlled robot to perform tasks commonly associated with intelligent beings. Gross domestic product (GDP) is the total monetary or market value of all the finished goods and services produced within a country’s borders in a specific time period. Personal Consumption Expenditures (PCE) price index, released each month in the Personal Income and Outlays report, reflects changes in the prices of goods and services purchased by consumers in the US. Soft Landing is a cyclical slowdown in economic growth that avoids a recession. As of 6/30/24 the companies mentioned represented 37.45% of the fund’s portfolio in the aggregate. The holdings listed should not be considered recommendations to buy or sell a particular security. Other holdings may not have performed as well as some of those listed herein. Portfolio composition is subject to change at any time. This material has been provided for informational purposes only and should not be construed as investment advice or a recommendation of any particular investment product, strategy, investment manager or account arrangement, and should not serve as a primary basis for investment decisions. Prospective investors should consult a legal, tax or financial professional in order to determine whether any investment product, strategy or service is appropriate for their particular circumstances. Views expressed are those of the author stated and do not reflect views of other managers or the firm overall. Views are current as of the date of this publication and subject to change. This information contains projections or other forward-looking statements regarding future events, targets or expectations, and is only current as of the date indicated. There is no assurance that such events or expectations will be achieved, and actual results may be significantly different from that shown here. The information is based on current market conditions, which will fluctuate and may be superseded by subsequent market events or for other reasons. References to specific securities, asset classes and financial markets are for illustrative purposes only and are not intended to be and should not be interpreted as recommendations. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed. No part of this material may be reproduced in any form, or referred to in any other publication, without express written permission. BNY Mellon Investment Advisor, Inc. serves as the fund’s investment adviser. Fayez Sarofim & Co. (Sarofim & Co.) is the fund’s sub-investment adviser. Fayez Sarofim & Co. is not affiliated with BNY Mellon Investment Advisor, Inc or any BNY Company. BNY Mellon Investment Adviser, Inc. and BNY Mellon Securities Corporation are subsidiaries of BNY. BNY is a corporate brand of The Bank of New York Mellon Corporation and may also be used as a generic term to reference the Corporation as a whole or its various subsidiaries generally. © 2024 BNY Mellon Securities Corporation, distributor, 240 Greenwich Street, 9th Floor, New York, NY 10286. |
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