Market Review
International equities, represented by the MSCI EAFE Index, lagged slightly for the quarter, with some macro events impacting sentiment in a few markets. Investors have been digesting the prospect of central bank reticence regarding the pace and scale of interest rate cuts, amid an uncertain economic environment in a number of countries.
The eurozone economy has been improving in fits and starts, but growth remains lackluster. Falling inflation and tight labor markets have helped consumption, and there were nascent signs of recovery in the manufacturing sector. However, while still in positive territory, the S&P HCOB Composite Purchasing Manager Index for June contained the mixed message of growth in the service sector but a recovery in manufacturing activity showed signs of stalling. Against this tepid backdrop, the European Central Bank (ECB) obliged investors with an interest rate cut in June despite the minor uptick in inflation in May.
However, President Macron’s call for a snap election created anxiety beyond the French border. The source of this concern stems from potential fiscal recklessness. The second source of market anxiety is the possibility of a left-wing, tax-and-spend coalition that would also seek to unwind Macron’s modest labor and pension reforms. A center-left government has been elected in the UK.
Performance Summary
The BNY Mellon International Stock Fund, excluding sales charge, outperformed the MSCI EAFE Index for 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 |
|
Class A (NAV) / 12/29/06 |
-0.08% |
5.03% |
6.87% |
0.21% |
6.59% |
6.11% |
|
Class A (5.75% max. load) |
-5.84% |
-1.00% |
0.75% |
-1.74% |
5.34% |
5.48% |
|
Class I (NAV) / 12/29/06 |
-0.04% |
5.22% |
7.21% |
0.55% |
6.96% |
6.46% |
|
Class Y (NAV) / 07/01/13 |
-0.04% |
5.20% |
7.26% |
0.58% |
7.00% |
6.49% |
|
MSCI EAFE Index |
-0.42% |
5.34% |
11.54% |
2.89% |
6.46% |
4.33% |
|
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 |
Gross1 |
Net2 |
|
Class A |
1.23% |
1.23% |
|
Class I |
0.93% |
0.93% |
|
Class Y |
0.89% |
0.89% |
|
[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. |
Japanese equities endured a dull quarter, especially so in US dollar terms, with the yen weakening to levels last seen at the end of the late-eighties asset bubble. The economy shrank in the first quarter, reflecting the impact of inflation on consumption, and muted manufacturing activity. Inflation has been rising but it has been of the cost-push rather than the demand-led variety, due in part to a weak currency. Real wage growth remains elusive with inflation on the rise, so to tame rising prices, the Bank of Japan may embark on further monetary tightening.
Despite China-related markets enjoying a solid quarter, concerns over the property sector, Sino-Western political tensions and the consequent steady march of the China +1 phenomenon continue to linger. However, China remains an integral part of global supply chains, and as the world’s second-largest economy by gross domestic product, it still represents a significant export market for the world’s leading companies.
|
Top 10 Holdings (6/30/24) |
|
|
Novo Nordisk (NVO) |
4.55% |
|
Taiwan Semiconductor Manufacturing (TSM) |
4.41% |
|
ASML Holding (ASML) |
3.15% |
|
Keyence (OTCPK:KYCCF) |
3.02% |
|
ASM International (OTCQX:ASMIY) |
2.82% |
|
Alimentation Couche-Tard (OTCPK:ANCTF) |
2.63% |
|
Inditex |
2.62% |
|
Air Liquide (OTCPK:AIQUF) |
2.58% |
|
adidas (OTCQX:ADDYY) |
2.55% |
|
LVMH Moet Hennessy Louis Vuitton (OTCPK:LVMHF) |
2.51% |
|
The holdings listed should not be considered recommendations to buy or sell a security. Large concentrations can increase share price volatility. |
|
Performance Review
At a sector level, the fund’s technology holdings were the largest contributors to both absolute and relative returns during the quarter. Consumer discretionary stocks were more resilient than their benchmark counterparts, which were particularly weak over the period, and added further to relative performance. A less-than-benchmark exposure to financials, which were robust over the quarter, detracted from relative return. The healthcare holdings underperformed and detracted on a relative basis, though this was partly offset by greater exposure to the strong sector. From a regional perspective, emerging markets were the largest relative contributor. On the downside, UK and Pacific ex-Japan stocks detracted from relative performance.
Top Contributors
The top contributors to relative performance include Novo Nordisk, Taiwan Semiconductor, ASM, adidas, and Novartis.
Top Detractors
The top detractors from relative performance include LVMH, Shin-Etsu Chemical (OTCPK:SHECF), Diageo (DEO), SMC, and Dassault Systemes (OTCPK:DASTY).
Market Outlook
International equity markets have been reflecting the growing realization that the US Federal Reserve is not quite ready to be their friend, while the ECB will monitor the pace of wage growth before committing to further interest rate cuts. This year may not be a banner year for global growth, but with the pace of inflation slowing considerably over the last year, the consensus view is for modest economic expansion. Set against a backdrop of eventual interest rate cuts in the West, this may be supportive of equities, although this benign scenario could be undermined by the cumulative effects of higher prices on consumer wallets or stubborn inflation. This latter caveat also holds true for Japan.
Although interest rates may be cut as the year proceeds, we believe that the days of ultra-cheap money are long gone. Elections in Europe have raised the specter of fiscal irresponsibility, and in the context of a higher cost of capital, that may present a source of volatility in equity and bond markets. The US election additionally raises the worry of protectionism which will have global ramifications. However, such notes of caution do not temper our optimism. We will maintain our focus on bottom-up fundamentals, continuing to invest in what we believe are financially strong, leading businesses that can adapt, innovate and weather near-term headwinds.
|
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 and Y 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, among other factors, 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. Small and midsized company stocks tend to be more volatile and less liquid than larger company stocks as these companies are less established and have more volatile earnings histories. Definitions NAV is Net Asset Value. YTD is Year to Date. FDIC is Federal Deposit Insurance Corp. China +1 is the business strategy to avoid investing only in China and diversify business into other countries. 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. HCOB Purchasing Managers Index, compiled by S&P Global, is the leading economic indicator for the eurozone, Germany, France, Italy and Spain. Index Definition The MSCI EAFE Index (Europe, Australasia, Far East) is a free float-adjusted, market capitalization-weighted index that is designed to measure the equity market performance of developed markets, excluding the U.S. and Canada. Reflects reinvestment of net dividends and, where applicable, capital gain distributions. Investors cannot invest directly in any index. As of 6/30/24 the companies mentioned represented 26.73% 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 Adviser, Inc., Walter Scott (the Fund’s sub-adviser), and BNY Mellon Securities Corporation are subsidiaries of BNY. BNY is a corporate brand of The Bank of New York Mellon Corporation © 2024 BNY Mellon Securities Corporation, distributor, 240 Greenwich Street, 9th Floor, New York, NY 10286. |
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