Download Bonds Without Borders: The Case for Going Global

Bonds Without Borders:
The Case for Going Global
Dreyfus/Standish Global Fixed Income Fund
CLASS A DHGAX | CLASS C DHGCX | CLASS I SDGIX
DREYFUS/STANDISH GLOBAL FIXED INCOME FUND, BONDS WITHOUT BORDERS: THE CASE FOR GOING GLOBAL
1
A long-held bias toward domestic bonds must naturally give way to a new, irreversible reality:
The bond market, in our opinion, is at a turning point, and we believe a U.S.-based, traditional,
“one-size-fits-all” approach to fixed income investing isn’t likely to provide the benefits that many investors
have come to expect. Though American fixed income markets remain low-yielding and are likely
to face a rising rate environment, that may not be true everywhere.
Borderless Opportunity
Outside the U.S., we believe there is plenty of investment opportunity and an array of interest-rate exposures.
Investors need to be aware that sidestepping global bond exposure may be the equivalent of turning a blind eye
to a growing majority of new bond issues out there today. The fact is, over 60% of bonds are issued outside the U.S.
(compared with 46% of equities), and the global bond market is even larger than the U.S. equity market.
Over 60% of Bonds Are Issued Outside the U.S.
More bonds than stocks are issued beyond our borders
U.S. Market Value
Non-U.S. Market Value
80%
70%
60.93%
60%
53.80%
50%
40%
46.20%
39.07%
30%
20%
10%
0%
Global Bonds Multiverse Index
$47.84 trillion
With many investors still significantly exposed to the
fate of the U.S. economy, taking a globalized position
may be an important part of a broader diversification
strategy. Consider this: Most of your homes are in the
U.S., your wages are paid in U.S. dollars, and your overall
investment portfolios are typically skewed heavily
Global Stocks MSCI ACW Index
$37.62 trillion
toward U.S. stocks and bonds. With most of today’s bond
investments coming from outside the U.S., we believe the
advantage may well go to funds with a global reach simply
because they’ll be in a position to tap more diversified
sources of investment opportunity and rate exposures.
Sources: Bloomberg Index Services Limited (“BISL”) as of 12/30/16 and MSCI All Country World Index (USD) as of 12/31/16. The comparison above is
a representative universe as defined by the following indices. The Multiverse Index provides a broad-based measure of the global fixed income bond
market. The index represents the union of the Global Aggregate Index and the Global High-Yield Index and captures investment-grade and high-yield
securities in all eligible currencies. The MSCI ACW Index captures large- and mid-cap representation across 23 developed market (“DM”) and 23
emerging market (“EM”) countries. With 2,486 constituents, the index covers approximately 85% of the global investable equity opportunity set.
An investor cannot invest directly in any index.
DREYFUS/STANDISH GLOBAL FIXED INCOME FUND, BONDS WITHOUT BORDERS: THE CASE FOR GOING GLOBAL
2
Active Risk Management
In an increasingly volatile and complex economic and geopolitical setting, we believe a core
fixed income alternative that combines a global opportunity set with an active currency hedging strategy
may help reduce correlations and mitigate portfolio volatility over time. Actively hedging most foreign currency
exposure may help protect the U.S. dollar value of the fund’s investments from fluctuations.
Hedged Global Bonds Have Historically Provided a ‘Smoother Ride’
Active currency hedging may mitigate portfolio volatility
Bloomberg Barclays Global Aggregate Index x USD (U.S. $ Hedged)
Bloomberg Barclays Global Aggregate Index x USD (Unhedged)
U.S. Dollar Performance (DXY Index) — RIGHT AXIS
LEFT AXIS
$130
$500
Unhedged index
outperformed
U.S. $ hedged
index by 85%
$450
$400
PORTFOLIO VALUE
$350
Unhedged index
outperformed U.S.
$ hedged index by
52% during weak
dollar environment
$125
$120
$115
$110
$105
$300
$100
$250
$95
$200
$90
$85
$150
U.S. $ hedged index
outperformed
unhedged index by
75% during strong
dollar environment
$100
$50
$80
$75
U.S. $ hedged index
outperformed
unhedged by 37%
$70
$65
2016
2015
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
$0
Source: FactSet, January 1990 – December 2016. This example assumes a $100 investment in the Bloomberg Barclays Global Aggregate Index on
12/31/89 to 12/31/16. The Bloomberg Barclays Global Aggregate Index is a measure of global investment-grade debt from 24 local currency markets.
The hedged index reflects index results converted to USD. The U.S. Dollar Index (USDX, DXY) is a measure of the value of the U.S. dollar relative to a
basket of foreign currencies from its most significant trading partners. This example is for illustrative purposes only. Past performance is no guarantee
of future results. An investor cannot invest directly in any index.
DREYFUS/STANDISH GLOBAL FIXED INCOME FUND, BONDS WITHOUT BORDERS: THE CASE FOR GOING GLOBAL
3
Active Risk Management
CONTINUED
Wide gyrations of key indicators in different countries
may have been due to the fact that economic and
monetary cycles, inflation rates, debt-to-GDP ratios,
interest rates and currency performance have varied
significantly. This sounds daunting, but we believe it’s
actually an opportunity for seasoned portfolio managers
to potentially mitigate risk. Since the fund’s inception, it
has exhibited low correlation to both U.S. interest rates
and several major domestic and international indices.
Historically Low Correlation With U.S. Interest Rates
Plus the fund outperformed the Bloomberg Barclays U.S. Aggregate Bond Index in 12 of the past 15 quarters
when rates rose
Dreyfus/Standish Global Fixed Income Fund (Class I)
Bloomberg Barclays U.S. Aggregate Bond Index
6%
5.50%
In the last seven years, U.S. interest rates rose 15 times
over a quarter. The fund had positive returns in 10 of
those 15 quarters and outperformed the Bloomberg
Barclays U.S. Aggregate Bond Index in 12 quarters.
5%
QUARTERLY TOTAL RETURN
4%
3%
2.19%
2%
1.88%
1.78% 1.85%
1.39%
1%
0.41%
0.12%
0.63%
0.42%
0.20%
0.84%
0.73%
0.57%
0.30%
0.21%
0%
0.46%
0.24%
-0.12%
-0.07%
-0.14%
-0.57%
-1%
-1.37%-1.30%
-1.68%
-2%
-1.88%
-2.31%-2.32%
-3%
-2.93%
Q1
2009
Q2
2009
Q4
2009
Q4
2010
Q1
2011
Q1
2012
Q4
2012
Q1
2013
Q2
2013
Q3
2013
Q4
2013
Q2
2015
-2.98%
Q4
2015
Q3
2016
Q4
2016
Source: Standish. Interest-rate changes refer to the U.S. 10-Year Treasury rate. Past performance is no guarantee of future results. Portfolio composition
is as of 12/31/16 and subject to change at any time. The Bloomberg Barclays U.S. Aggregate Bond Index is an index composed essentially of U.S. bonds,
whereas the Bloomberg Barclays Global Aggregate Index is an index composed mostly of non-U.S. bonds. An investor cannot invest directly in any index.
DREYFUS/STANDISH GLOBAL FIXED INCOME FUND, BONDS WITHOUT BORDERS: THE CASE FOR GOING GLOBAL
4
Active Risk Management
CONTINUED
Historically Low Correlation With Major Indices
Select domestic and international indices from January 1, 2007 – December 31, 2016
1.00
1.0
0.9
0.79
CORRELATION
0.8
0.7
0.6
0.5
0.44
0.4
0.3
0.2
0.18
0.24
0.29
0.29
MSCI
Emerging
Markets
Index
MSCI
EAFE
Index
0.47
0.1
0.0
S&P 500
Index
MSCI
World
Index
BofA ML U.S.
HY Master II
Constrained
(USD Unhedged)
Index
J.P. Morgan
GBI-EM Global
Diversified
Composite
Index
Bloomberg
Barclays U.S.
Aggregate Bond
Index
Dreyfus/Standish
Global Fixed
Income Fund
(Class I)
Source: Morningstar. Correlation measures the degree to which the performance of a given asset class moves in relation to another, on a scale of -1 to
1. Negative 1 indicates a perfectly inverse relationship, 0 indicates no relationship, and 1 indicates a perfectly positive relationship. The data shown
represent past performance, which is no guarantee of future results.
Along with the potential benefits of low correlations,
investors may expect a bond fund to pursue income
with moderate overall volatility. To these ends, the
fund’s managers selectively build the portfolio bond by
bond, using derivatives primarily for hedging and risk
management, without relying on them for significant
sources of alpha.
Another tool in pursuit of income comes in the form of
potentially mitigating risks, including liquidity risk. For
this, we believe a bond fund’s size matters, absolutely,
and smaller funds have the advantage. For extremely
large bond funds to access opportunities in smaller,
more lightly traded sectors of the fixed income markets,
they must assume substantial ownership positions —
including all attendant risks. These positions can prove
difficult to unwind quickly, especially in a selloff. We
believe a right-sized fund can invest with high conviction
in smaller bond markets, where U.S. investors are not yet
active. Unlike mega-sized funds, smaller funds can take
positions in countries that may be undervalued without
owning the entire market.
Index definitions: Standard & Poor’s 500 (S&P 500) Composite Stock Price Index is a widely accepted, unmanaged index of U.S. stock market
performance. Morgan Stanley Capital International Europe, Australasia, Far East (MSCI EAFE) Index is a free float-adjusted market capitalizationweighted index that is designed to measure equity performance in developed markets excluding the U.S. and Canada. The index consists of select
designated MSCI national developed market indices. Morgan Stanley Capital International World Index is designed to measure global equity
performance of developed markets. The index includes select designated MSCI national developed market indices. Morgan Stanley Capital
International Emerging Markets Index is a free float-adjusted market capitalization-weighted index that is designed to measure the equity
performance in global emerging markets. The index consists of select designated MSCI emerging market national indices. MSCI Indices reflect
investable opportunities for global investors by taking into account local market restrictions on share ownership by foreigners. Bloomberg Barclays
U.S. Aggregate Bond Index (U.S. Agg) is a widely accepted, unmanaged total return index of U.S. dollar-denominated corporate, government and
government-agency debt instruments, mortgage-backed securities, and asset-backed securities with an average maturity of 1–10 years. J.P. Morgan
GBI-EM Global Diversified Composite Index tracks regularly traded, liquid, fixed-rate, local currency debt issued by emerging market governments.
BofA Merrill Lynch U.S. High Yield Master II Constrained (USD Unhedged) Index is an unmanaged performance benchmark composed of U.S. dollardenominated domestic and Yankee bonds rated below investment grade with at least $100 million par amount outstanding and at least one year
remaining to maturity. Bonds are capitalization-weighted. Total allocations to an issuer are capped at 2%. Currency exposure is hedged to the U.S.
dollar. An investor cannot invest directly in any index.
DREYFUS/STANDISH GLOBAL FIXED INCOME FUND, BONDS WITHOUT BORDERS: THE CASE FOR GOING GLOBAL
5
The Proof Is in the Results
Global hedged bonds have historically demonstrated higher returns alongside lower risk than broad,
U.S.-only benchmarks. One reason is that in a hedged portfolio, currency volatility may be reduced or eliminated
by the use of derivative contracts that seek to negate the effects of currency fluctuations. The fund seeks to benefit
from managers who are able to employ an appropriate level of currency hedging versus the dollar, and can also
pivot the fund’s foreign currency exposure as market conditions dictate.
Global Hedged Bonds Have Historically Bested U.S.-Only Benchmarks With Lower Risk
Historical risk/reward comparison
15 years ended 12/31/16
10%
15-YEAR ANNUAL RETURN
9%
EMERGING
MARKETS
BONDS
HEDGED
8%
7%
BLOOMBERG
BARCLAYS U.S.
AGGREGATE
6%
5%
4%
I.G. CREDIT
FOREIGN BONDS
GLOBAL BONDS
HEDGED
3%
HIGH YIELD
U.S. TREASURY
2%
1%
0%
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
10%
15-YEAR STANDARD DEVIATION
Source: Morningstar as of 12/31/16. Past performance is no guarantee of future results. Please see the back cover for a description of these indices.
An investor cannot invest directly in any index.
Average Annual Total Returns
2000 to 2016
15.48%
16%
ANNUAL TOTAL RETURN
The complexity of today’s global
bond marketplace calls for an
experienced team in the decisionmaking process, in our opinion.
Gross of fees, the fund’s historical
year-by-year performance
speaks for itself.
12%
9.79%
9.55%
8%
6.94% 6.38%
5.09%
4.98%
4.51%
4%
7.85%
7.50%
3.64%
6.02%
4.30%
3.72%
2.41%
0.11%
0%
00
01
02
03
04
05
06
07
08
09
10
11
12
13
-0.28%
14
15
16
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. Go to dreyfus.com for the fund’s most recent month-end returns.
Source: Dreyfus. Performance is based on Class I shares, which are available only to certain eligible investors. Other share classes may have achieved
different returns. Positive calendar-year returns do not equate with no principal decline, due to the offsetting potential of reinvested dividend income.
DREYFUS/STANDISH GLOBAL FIXED INCOME FUND, BONDS WITHOUT BORDERS: THE CASE FOR GOING GLOBAL
6
As the global search for yield continues,
investors will increasingly rely on a seasoned lens through which to view the
fixed income landscape holistically and realistically. Naturally, a prudent bond
investor will seek to provide a buffer against equity market corrections and
undue risk, while preserving the potential for capital growth.
Likewise, we believe an agile, diversified bond mix will keep a view
of opportunity unlimited by borders, and will consider derivative tools
for hedging risk without relying on them for alpha.
Dreyfus/Standish Global Fixed Income Fund — Class A DHGAX | Class C DHGCX | Class I SDGIX
Average Annual Total Returns
Period ended 3/31/171
SHARE CLASS/INCEPTION DATE
1 YEAR
3 YEARS
5 YEARS
10 YEARS
Class A (NAV) 12/2/09
1.76%
2.68%
3.42%
5.35%
Class A (4.50% max. load)
-2.83%
1.12%
2.48%
4.86%
Class I (NAV) 1/1/94
2.06%
2.97%
3.74%
5.56%
Bloomberg Barclays Global Aggregate Index (Hedged)
1.09%
3.60%
3.43%
4.31%
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. Go to dreyfus.com for the fund’s most recent month-end returns. Total Expense Ratios: Class A 0.81%, Class I 0.52%.
Class I shares are available only to certain eligible investors.
1
he total return performance figures presented for Class A shares of the fund represent the performance of the fund’s Class I shares for periods
T
prior to December 2, 2009, the inception date for Class A shares, and the performance of Class A from that inception date. Performance reflects the
applicable class’s sales load and distribution/servicing fees since the inception date. Had these fees and expenses been reflected for periods prior,
performance would have been lower. Investors should consider, when deciding whether to purchase a particular class of shares, the investment
amount, anticipated holding period and other relevant factors.
DREYFUS/STANDISH GLOBAL FIXED INCOME FUND, BONDS WITHOUT BORDERS: THE CASE FOR GOING GLOBAL
7
Learn more
Advisors: Call 1-877-334-6899 or visit dreyfus.com
Mutual fund investors: Contact your financial advisor or visit dreyfus.com
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
advisor or visit dreyfus.com. Read the prospectus carefully before investing.
Bloomberg Barclays U.S. Aggregate Bond Index (Barclays U.S. Agg) is a widely accepted, unmanaged total return index of U.S. dollar-denominated
corporate, government and government-agency debt instruments, mortgage-backed securities, and asset-backed securities with an average maturity of
1–10 years. Bloomberg Barclays Global Aggregate Index Excluding U.S. (Foreign Bonds) provides a broad-based measure of the global investment-grade
fixed-income markets excluding the U.S. Bloomberg Barclays Global Aggregate Index Hedged (Global Bonds Hedged) provides a broad-based measure of
the global investment-grade fixed-income markets. Currency exposure is hedged to the U.S. dollar. Bloomberg Barclays U.S. Treasury Index (U.S. Treasury)
measures U.S. dollar-denominated, fixed-rate, nominal debt issued by the U.S. Treasury. Bloomberg Barclays U.S. Corporate High Yield 2% Issuer Capped
Bond Index (High Yield) is an issuer-constrained version of the flagship U.S. Corporate High Yield Index, which measures the USD-denominated, high-yield,
fixed-rate corporate bond market. Bloomberg Barclays U.S. Aggregate Corporate Index (IG Credit) is an unmanaged index considered representative of
the U.S. investment-grade, fixed-rate bond market. Bloomberg Barclays Emerging Markets USD Aggregate Index is a flagship hard-currency emerging
market debt benchmark that includes fixed- and floating-rate U.S. dollar-denominated debt issued from sovereign, quasi-sovereign, and corporate EM
issuers. An investor cannot invest directly in any index.
RISKS
Bonds are subject to interest-rate, credit, liquidity, call and market risks, to varying degrees. Generally, all other factors being equal, bond prices are inversely
related to interest-rate changes and rate increases can cause price declines. 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. High yield bonds involve increased credit and
liquidity risk than higher-rated bonds and are considered speculative in terms of the issuer’s ability to pay interest and repay principal on a timely basis. The
use of derivatives involves risks different from, or possibly greater than, the risks associated with investing directly in the underlying assets. Derivatives can
be highly volatile, illiquid, and difficult to value and there is the risk that changes in the value of a derivative held by the portfolio will not correlate with the
underlying instruments or the portfolio’s other investments.
Asset allocation and diversification cannot ensure a profit or protect against loss in declining markets.
Charts are provided for illustrative purposes only and are not indicative of the past or future performance of any Dreyfus product.
BNY Mellon Investment Management is one of the world’s leading investment management organizations and one of the top U.S. wealth managers,
encompassing BNY Mellon’s affiliated investment management firms, wealth management services and global distribution companies.
This material has been distributed for informational purposes only and should not be considered as investment advice or a recommendation of any
particular investment, strategy, investment manager or account arrangement. Information contained herein has been obtained from sources believed to be
reliable, but not guaranteed. Please consult a legal, tax or investment advisor in order to determine whether an investment product or service is appropriate
for a particular situation. No part of this material may be reproduced in any form, or referred to in any other publication, without express written permission.
The Dreyfus Corporation, Standish (the fund’s sub-adviser) and MBSC Securities Corporation are companies of BNY Mellon. © 2017 MBSC Securities
Corporation, Distributor, 225 Liberty Street, 19th Fl., New York, NY 10281.
MARK-2017-05-03-1612
6940BWBBRO-0317