BNY Mellon unveils high-yield beta fund for UK, Europe markets

BNY Mellon Investment Management, the US$1.8trn AUM asset manager, has unveiled a new high-yield beta fund it says is aimed at the UK and European institutional and intermediary markets.

The new BNY Mellon US High Yield Beta Fund will be managed by Mellon Capital Management Corp, one of BNY Mellon IM’s boutique asset management businesses, the company said in a statement this morning.

It said the new fund would look to “overcome the difficulties that high-yield bond funds have experienced with respect to achieving clients’ performance objectives”.

The fund’s managers will seek to do this, BNY Mellon IM says,  by adopting  “a unique and cost-efficient approach that aims to achieve returns similar to the Bloomberg Barclays US Corporate High Yield Index over a full market cycle”, by maintaining market risk in line with its benchmark, and “carefully managing default risk, while incorporating [certain] principles”.

These principles are:

• Individual high yield bonds are to be optimised to reflect the key risk characteristics of the benchmark, with a focus on matching the market risk of the benchmark (“beta one”);

• The use of a proprietary structural and fundamental credit model that seeks to reduce exposure to potential defaults, and mitigate downside risk;

• The use of “innovative implementation tools” to provide liquidity, minimise transactions costs, and allow for same day capital deployment. These tools will also, BNY Mellon IM says, help align portfolio risk characteristics with the index, in keeping with the manager’s asset allocation decisions;

• The use of, as the fund’s target index, the broad high yield market index, which “provides the potential for superior results by accessing the full spectrum of high yield credits, versus a more liquid subset of the broad index”.

Matt Oomen, Head of International Distribution at BNY Mellon IM, says the new fund will give institutional and intermediary investors “a cost-effective solution” for achieving exposure to US high yield bonds “at a time when the search for yield continues to be a dominant theme for investors”.

“Accessing the returns of the high-yield market has proven to be elusive, with asset managers struggling to keep pace with the performance of the broad market index,” Oomen added.

“This is particularly true on a net basis.

“The fund we are introducing is more cost-efficient than [those of] the competition…

“We believe it will deliver competitive performance in line with the index, and features improved liquidity in an illiquid sector.”

He added that the fund makes use of a strategy that BNY Mellon’s Mellon Capital Management boutique has eployed for the past five years, and which he said had “outperformed [its] peers since inception in 2012”.

Registered in 12 countries  

The BNY Mellon US High Yield Beta Fund is registered for distribution in the UK, Germany, France, Italy, Spain, the Netherlands, Austria, Belgium, Denmark, Finland, Norway and Sweden, and plans are to register it as well in Switzerland.

BNY Mellon is the corporate brand of The Bank of New York Mellon Corp, a New York City-based, New York Stock Exchange-listed financial services company. It was created in 2007 by the merger of the Bank of New York and Mellon Financial Corp,  which resulted in the creation of one of the world’s largest custodian banks and asset management companies.

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