28 BARRON’S October 19, 2020
FUND PROFILE
Talking With Suzanne Hutchins
Manager,BNYMellonGlobalRealReturnFund
Photograph byKATE PETERS
AHedge
Fundfor
Everyone
F
or many investors, not losing money is just as
important as making more. TheBNY Mellon
Global Real Returnfund excels at both.
The fund (ticker: DRRIX), managed by
London-based Suzanne Hutchins, 53, aims to
generate positive long-term, or “absolute,”
returns, regardless of how the market has
performed. “The objective...is to generate an absolute
return of Libor or cash plus 4% over the longer term,
and to help preserve capital on the downside,” she ex-
plains.
Libor, the London interbank offered rate, has been
near zero since the 2008 crash, except for a small spike
in 2018 and 2019—which means the $3 billion fund’s
4.2% annualized return in the past decade is close to its
goal. It also beats 94% of its peers, many of which also
seek absolute returns, in Morningstar’s Multialterna-
tive fund category. Throw in a 0.91% expense ratio—
low for its hedge-fund-like category—and its appeal is
apparent.
The U.S. version of the fund launched in 2010 after
the 2008-09 bear market ended, though the British
version of the strategy—largely identical except for its
United Kingdom currency exposure—dates back to
- That strategy produced an impressive 4.8% re-
turn in 2008 when the MSCI All Country World Index
of stocks fell 42% and the S&P 500 index dove 37%.
The U.S. fund has only had one down calendar year, a
minuscule 0.01% decline in 2011.
One advantage of Hutchins’ strategy is its flexibility.
The fund can invest worldwide in stocks, bonds, com-
modities, and precious metals without weighting con-
straints. It can also hedge, typically buying put op-
tions—financial contracts that give holders the right to
sell securities at a predetermined price—in indexes
such as the S&P 500 or the Euro Stoxx 50 to limit the
By LEWIS BRAHAM
October 19, 2020 BARRON’S 29
fund’s downside. “We live in an ever-
evolving investment environment, and you
need to be dynamic and flexible” to pro-
duce absolute returns, she says. “You don’t
want to be constrained by being all equi-
ties. An all-equities strategy brings about
a lot of volatility.”
While a flexible allocation strategy is
good in theory, it is challenging to execute
in practice, as it requires a deep knowl-
edge base in every asset class. The fund
has that. Hutchins heads a team of eight
portfolio managers, each with a different
expertise—from derivatives and hedging
maven Aron Pataki and corporate-debt
specialist Philip Shucksmith to global-eq-
uities expert Matthew Brown. The team
can access any of advisor Newton Invest-
ment Management’s 70-plus investment
staff. (Bank of New York Mellon acquired
Newton in 1998.)
Hutchins employs both a top-down
macro approach to asset classes, as well as
a bottom-up one to find the best individual
securities in those classes. Most funds lean
either one way or the other, and managers
of allocation funds tend to emphasize
macro analysis of investment categories
and will often use index funds or futures
to access them.
The fund’s top stock position isLinde
(LIN), a U.K.-based supplier of industrial
gases such as nitrogen, argon, helium, and
acetylene. “It’s the largest company in the
global industrial gas space, and it’s in a
very consolidated market,” Hutchins says.
Linde’s industry dominance gives it pric-
ing power, giving it “real competitive ad-
vantages,” she adds, even though it is eco-
nomically sensitive. The company merged
with U.S.-based Praxair in 2019, which
she believes will create synergies and cost
savings.
Hutchins sees Linde’s cyclicality as a
strength. “We’ve seen the Covid winners
being a lot of the technology companies,
and what we’ve been wanting to do, over
the course of this year, is balance out the
portfolio between cyclicals and structural
growth [companies],” she says. “Our view
is that the economy will come out of the
recession that we’re in.” The fund also
holds tech stalwarts likeMicrosoft
(MSFT),Alphabet(GOOGL), andAma-
zon.com(AMZN).
Overall, Hutchins is “constructive” in
her economic outlook for 2021. “The
amount of [central bank] quantitative eas-
ing and monetary response [to the corona-
virus crisis] dwarfs that of 2008 by about
five- or six-fold,” she says. “It’s humon-
gous, and it’s on a global scale. And that
money has got to go somewhere.”
But she warns that uncertainty about
elections and the pandemic could spike
volatility in the short term, so she has
hedged a portion of the fund’s exposure
with index put options.
At the start of 2020,the Global Real
Return fund had 30% in individual stocks,
with 26% net equity exposure after adjust-
ing for hedges. At the end of August, it
had 44% in stocks, with 38% hedge-ad-
justed. The fund’s cash position has
dropped from 27% at 2020’s start to under
6% as of Aug. 31, as it went on a stock buy-
ing spree during the March crash.
Another defensive investment is gold,
which makes up about 15% of the portfo-
lio, compared with just 6% at the start of
the year. “Historically, in the first four
years of the strategy, we didn’t own any
gold whatsoever,” Hutchins says. She be-
gan incorporating gold into the fund’s
toolbox after the 2008-09 financial crisis.
Gold normally competes with the U.S. dol-
lar as a store of value globally, but when
rates are zero and central banks are print-
ing money—as they are now—the dollar
begins to lose value against an alternative
currency like gold.
All of Hutchins’ maneuvers have en-
abled the fund to hit its return target in
this most volatile year—it is up 5.8% in
2020, and 8.1% in the past 12 months. The
fund’s volatility is much lower than that of
the S&P 500, and more comparable with
high-quality bond funds. Such “invest-
ment grade” bonds typically yield less
than 2% right now and will suffer if inter-
est rates rise again, as bond prices and
rates move inversely. In such an environ-
ment, the Global Real Return fund looks
especially good.B
BNY Mellon Global Real Return
Total Return
3-Yr 5-Yr 10-Yr
DRRIX 6.1% 5.0% 4.2%
Multialternative Category 1.5 2.1 2.5
Top 10 Holdings
Investment / Ticker Weight
GRR Commodity Fund (gold) 14.4%
Linde / LIN 1.5
S&P 500 Call Option 1.4
Microsoft / MSFT 1.3
AIA Group / 1299.Hong Kong 1.2
Vivendi / VIV.France 1.2
Mastercard / MA 1.1
Diageo / DGE.UK 1.1
Eversource Energy / ES 1.1
Barclays / BARC.UK 1.1
Total 25.4%
Note: Holdings as of Sept. 30; Returns through Oct. 12;
all returns are annualized. Sources: BNY Mellon; MorningstarADVERTISEMENT
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