BNY Mellon US Equity Income – September 2026 fund update

• John Bailer has managed US Equity income funds since 2005 and has an established, clear and effective investment process

• The fund has typically performed strongly when its value-style of investing has been in favour

• The fund could add US exposure to a global income portfolio or work well alongside other more growth focussed US funds

• This fund is on our Wealth Shortlist of funds chosen by our analysts for their long-term performance potential

How it fits in a portfolio

The BNY Mellon US Equity Income fund aims to maximise total returns by growing both the income it pays to investors and the capital value. The fund can invest across the US market, but it tends to be invested in large companies that trade at attractive valuations. It seeks a balance of income today and dividend growth potential for the future. We think the fund could be a good way to add US exposure to a global income portfolio or sit alongside other US funds focused on more growth-style companies.

Manager

The fund is managed by John Bailer, a seasoned investor with over 20 years of experience under his belt. Bailer entered the industry in 1992 before becoming lead manager of the BNY dividends strategy in 2005. He’s now taken the success of this fund and in 2017 launched the UK version BNY Mellon US Equity Income Fund. He also runs the income sleeve for the BNY Mellon VIF Growth and Income fund and is back-up manager on the BNY Mellon US Dynamic fund. Given the commonality of approach, we’re comfortable this is a manageable workload.

Bailer is supported by back-up managers Brian Ferguson and Keith Howell in managing this fund. Ferguson has over 20 years of portfolio management experience and is a senior portfolio manager and research analyst at Mellon Investments. He’s managed the BNY Mellon Dynamic Value fund since 2003, a fund where Bailer is the back-up manager. Keith Howell joined BNY Mellon in 2006 as an analyst covering various sectors including financials, technology, and industrials. Howell became back up manager in 2021 after 15 years as an analyst.

We think Bailer is well resourced to focus on the job in hand. Along with his back-up managers, he and the team are supported by more than 20 analysts.

Process

Bailer invests in companies he believes can deliver a balance of a good income today, and dividend growth in the future. The process starts with a broad screen of the Russell 1000 as a good representation of the large-cap US market. Bailer uses this to identify businesses with high-quality characteristics. These businesses will typically have strong balance sheets and free cash flows, sustainable and well covered dividends and attractive revenue and earnings growth rates.

Bailer spends a lot of his time working with the wider analyst team at BNY Mellon as part of the idea generation process. Bailer wants to invest in companies that are trading at share prices lower than he feels they are worth in the long term, possibly reflecting some short-term headwinds. The manager works with analysts to consider what the upside and downside potential from here is.

Bailer will also look at whether the company pays a dividend to its investors and whether he believes the dividend will grow over time. Every company the fund invests in must pay a dividend at the point of buying. However, there have been special occasions where a company has cut its dividends and remained in the portfolio if the manager believes they will be re-instated in the future. Bailer believes if a company is paying a dividend, then this is a good indication of whether the management are allocating capital appropriately.

This process leads to a portfolio of 30-60 companies, generally split across three buckets; valuations, momentum, and quality. The fund can be quite concentrated, so each investment can have a big impact on performance, for better or worse. There is also the flexibility to use derivatives which can increase risk.

Over the last 12 months, Bailer has decreased the fund’s weighting to financials as well as industrial companies after a period of strong performance. On the other hand, he has increased the fund’s weighting to consumer staples and technology companies in order to make the fund more balanced.

New additions to the fund include technology giant Microsoft, which has quickly become the fund’s top position. Bailer believes the stock is now attractively valued and can be a beneficiary of AI rather than be disrupted by it. He also added consumer staples companies Colgate and Coca-Cola.

On the other hand, Bailer sold financial company Charles Schwab due to concerns that customers would move cash away from low-interest rate accounts to higher interest alternatives. He also sold health and beauty company Estee Lauder and Bank of America.

Culture

BNY Mellon is a large, US-based firm so the managers have a lot of resources at their disposal. In September 2021, Mellon Investments merged its equity and multi-asset teams into Newton. While this has not impacted the way Bailer invests for this fund, it has given him access to a larger pool of research analysts that help with idea generation.

The managers are incentivised in a way that aligns their interests with those of long-term investors, which we like. However there have been some significant fund manager departures from the wider Newton business in recent years.

ESG Integration

The team at BNY Mellon (formerly Newton) believes responsibly managed companies are better placed to achieve sustainable competitive advantage and provide strong long-term growth. While they’ve invested time and resource into their Responsible Investment proposition in recent years, we’re disappointed to note the departure of Therese Niklasson in 2025, someone we’ve long held in high regard.

A dedicated Responsible Investment team exercises the firm’s voting rights, coordinates engagement with investee companies and contributes to public debate on ESG matters. The team reports on their engagement progress in their annual Sustainability and Stewardship report, and their ‘Responsible Investment Quarterly Activities’ report (both available on the Newton website). They also offer a voting dashboard, which provides fund by-fund search functionality and detailed rationales for votes against management and abstentions.

Investment teams have access to a range of internal tools that consolidate third-party and proprietary ESG research, assess net zero transition credibility and track engagement objectives and outcomes. The firm also runs a responsible range of funds which take ESG analysis further. They utilise the firm’s thematic research framework to identify and exploit responsible investment themes

Although the manager of this fund utilises ESG in his, the fund isn’t managed to a sustainable mandate and it can include companies deemed as ESG sinners, such as tobacco and energy companies.

Cost

The fund usually has an annual ongoing charge of 0.82%, but with a 0.21% saving it’s available to HL clients for 0.61%. The HL platform fee of up to 0.35% per year also applies, except in the HL Junior ISA, where no platform fee applies. Charges are taken from capital.

Both a buy and sell instruction will be subject to HL dealing charges. Find out more about our charges.

The fund takes its charges from capital which can increase the yield, but reduces the potential for capital growth.

Performance

Since starting to manage US equity funds in 2005 Bailer has delivered long term outperformance versus the IA North America peer group. Over the last 12 months, the fund returned 22.7%*, ahead of the 20.0% delivered by the S&P 500 and the 16.3% IA North America sector average.

Our analysis suggests the manager’s stock selection was the biggest driver of returns, particularly in the technology and financials space. This suggests the manager’s company analysis has added value, rather than performance being dominated by investing in the right sectors. Technology company Applied Materials was one of the biggest contributors, along with insurance and services company Assurant.

On the other hand, not owning some of the best performing stocks hurt relative performance. For example, technology companies such as Micron and Nvidia have performed exceptionally well but pay little to no dividends and are therefore not eligible for inclusion in the fund. Some companies the fund does own have also had a tougher time, such as packaging company International Paper Company and health insurance provider Humana.

We think Bailer has built a strong track record in US income investing and has done a good job over the long term for patient investors. The fund offers something quite different to some of its peers in the IA North America sector and Bailer is well supported and resourced for the task at hand. This gives us confidence in the fund’s long-term prospects.

The fund currently yields 1.74% compared to 1.1% for the S&P 500. Although income is not guaranteed, and yields aren’t a reliable indicator of future income.