NEW YORK—“We believe in back-to-basics, commonsense investing with the goal of achieving some return above inflation while seeking lower volatility,” said Suzanna Hutchins, investment manager of global funds at Newton, an affiliate of BNY Mellon.
Hutchins was addressing a press briefing at BNY Mellon headquarters here Tuesday titled “The Debt Overhang: Its Impact on Markets and the Global Economy.”
As such, investment leaders at BNY Mellon’s affiliates are optimistic about three investment themes for the foreseeable future: emerging markets, commodities and other staples, and commercial real estate.
“Emerging markets are full of risks, but these risks are distinct from other asset classes,” said Alexander Kozhemiakin, managing director of emerging markets strategies at Standish.
“In the U.S., all of the capital markets represent 440% of GDP, whereas in the emerging markets, they represent 180% of GDP. There is far less financial innovation in the emerging markets, which, 15 years ago, was a detractor. Today, that is a plus—as these nations have not borrowed as much as developed countries,” Kozhemiakin said.
“Not being as rich as developed nations also has its appeal. These countries have the potential to grow at higher rates than developed countries because they are starting at a lower base,” he continued.
“I don’t know what engine will pull us out of the recession, but emerging markets is a bright spot,” said Curtis Arledge, chief executive officer of BNY Mellon Investment Management.
“Right now, deleveraging is our biggest challenge,” Arledge continued. “It took the U.S. 50 years to re-leverage after the Great Depression. I am hopeful it will not take another 50 years for us to re-leverage this time. We have more advanced monetary and fiscal policies today, and American companies are more nimble and flexible than our counterparts, such as Japan.”
However, wants are still being overtaken by needs, as evidenced by still-inflated home prices, Arledge said. This is why BNY Mellon and its affiliates are also positive on commodities and staples. “I like agricultural commodities and energy—things that were not leveraged leading up to 2008 and that will continue to be needs,” Arledge said.
As far as commercial real estate is concerned, this market has been staging “a dramatic recovery, but it has been bifurcated between large, sought-after cities such as New York, Los Angeles and London, and has not migrated to have-not markets, such as suburban Detroit,” said E. Todd Briddell, president and CIO of Urdang Capital Management.
Driving the interest in the stronger markets is a growing search for yield in an environment where bonds are yielding less than 2%, Briddell pointed out. “This is why Illinois farmland has delivered 27% returns over the past year,” he said.
“I think commercial real estate should be viewed not as a growth play, but almost like a bond,” Arledge added. “If you buy it at the right price, and you get good yield, it has a coupon-like effect—and income has become the goal of our time.”