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If interest rates aren’t fixed, your fixed income approach shouldn’t be either

Which is why J.P. Morgan Asset Management invests dynamically across the full spectrum of fixed income solutions to manage risk and harvest yield in an uncertain world.

JPMorgan Global Strategic Bond Fund
JPMorgan Global Bond Opportunities Fund

TWO MAJOR CHALLENGES INVESTORS FACE TODAY


1. Equity volatility
 

2020 has been a remarkably eventful year for equity investors. Global stocks suffered one of the sharpest declines in the first quarter after the outbreak of COVID-19, compounded by a collapse in oil price. With central banks and governments piling on monetary and fiscal stimulus to an unprecedented degree to counter the economic impact of the COVID-19 shutdown, global stocks reversed course dramatically in the second quarter. 

Supported by improving macro data, a better-than-expected earnings season and a decline in virus cases in Europe and the US, equity and credit markets rallied for much of the third quarter. But as we approach the four quarter, we see looming event risks which include the US election outcome and the brewing of a new wave of COVID-19 infections.

Against this backdrop, Australian stocks fluctuated this year. The rally in the past few months have helped recoup losses earlier this year, narrowing year-to-date total return to –10.8% as of 30 September 2020.
 

ASX 200 index intra-year decline vs. calendar year returns

Source: FactSet, Standard & Poor’s, J.P. Morgan Asset Management. Returns are based on price only and exclude dividends. Intra-year decline refers to the largest market fall from peak to trough in a short period of time during the calendar year. Past performance is not a reliable indicator of current and future results. Guide to the Markets – Australia. Data as of 30.09.2020. 
 

Solution: Diversified^ portfolio
 

As volatility persists, allocating to fixed income can help build a resilient and diversified portfolio. US Treasuries, mortgage-backed securities (MBS) and investment grade (IG) bonds have low volatility and – more importantly – low or even negative correlation to stocks.
 

Different correlations to Australian equities

Source: Bloomberg Barclays, FactSet, Standard & Poors. Indices used: Australian equities: ASX 200; Treasuries: Bloomberg Barclays US Treasury Bellwethers (10Y); MBS: Bloomberg Barclays US Aggregate Securitised - MBS Index; Investment grade: Bloomberg Barclays US Aggregate Credit - Investment Grade; High yield: Bloomberg Barclays US Aggregate Credit - High Yield; Emerging Market Debt (EMD): Bloomberg Barclays Emerging Market USD Sovereign Index. All correlations based on monthly total return data in local currency for the period 29.02.2000 to 30.09.2020.

FIXED INCOME SOLUTIONS FOR RESILIENCE

JPMorgan Global Strategic Bond Fund

A wise traveler plans for the unknown

With a focus on mitigating downside risk, JPMorgan Global Strategic Bond Fund strives to deliver attractive risk-adjusted returns in different market conditions by investing flexibly across global fixed income markets.

READ MORE
JPMorgan Global Bond Opportunities Fund

Your bond portfolio should see the world

JPMorgan Global Bond Opportunities Fund seeks to enhance total returns by providing flexible, high-conviction exposure across 15 fixed income sectors and over 50 countries.

READ MORE


2. Lower-for-longer interest rates
 

In response to the COVID-19 pandemic, central banks and governments have rolled out monetary and fiscal support unprecedented in size, timing and coordination - driving rates lower for longer. In March 2020, the Reserve Bank of Australia (RBA) cut its cash rate two times to a record low of 0.25%. It also rolled out various measures to provide cheap funding to support corporates. The RBA remains committed to supporting the economy and further easing may occur in the coming months.

Looking forward, rates are likely to stay lower for longer as the US Federal Reserve (the Fed) announced in September 2020 a shift in focus to target an average inflation level of 2% over time. After years of failing to reach its inflation mandate, the Fed is prepared to tolerate higher rates of inflation before raising interest rates to ensure an average inflation of 2%.

This pushes any expectation of a rate hike by the Fed well beyond the 2023 date priced by the market. It also means that other central banks, including the RBA, are unlikely to be able to raise their rates if the Fed doesn’t, given the impact it could cause currencies to further appreciate against the US dollar. As real rates and real yields are expected to remain negative for some time, this would further limit the appeal of core government bonds.
 

25% of the global bond market are negative yielding 

Source: Bloomberg Barclays, BofA/Merrill Lynch, FactSet, J.P. Morgan Asset Management. For illustrative purposes only. Guide to the Markets – Australia. Data as of 30.09.2020.


Solution: Benefit from multiple income sources
 

Yield^^ can still be found, but may require an unconstrained approach to identify the high-conviction investing ideas. There are various types of bonds globally and they react differently to market changes such as interest rate movement and economic cycle. When managed properly, this could also mean added diversification^ in portfolios if alternative asset classes are included.

Source: Bank of America Merrill Lynch, Bloomberg Finance L.P., FactSet, ICE, J.P. Morgan Economics Research, MSCI, J.P. Morgan Asset Management.
Based on Bloomberg Barclays US Treasury (UST) Bellwether 2y & 10y (2y & 10y UST), Bloomberg Barclays Treasury Inflation-Protected Securities (TIPS), ICE BofAML Country Government (1-10y) (Australia, Germany, Japan & UK (1-10y)), Bloomberg Barclays US Aggregate, Credit – Investment Grade & High Yield (US Aggregate, IG & HY), Bloomberg Barclays US Floating Rate (US Floating Rate), Bloomberg Barclays US Aggregate Securitized – Mortgage-Backed Securities (US MBS), Bloomberg Barclays Pan-European High Yield (Europe HY), J.P. Morgan GBI-EM Global (Local EMD), J.P. Morgan EMBI Global (USD EMD), J.P. Morgan Asia Credit (JACI) (USD Asia Credit), J.P. Morgan Asia Credit (JACI) – High Yield (USD Asia HY), J.P. Morgan CEMBI (USD EM Corporate Credit), J.P. Morgan Asia Diversified (JADE) (Local Asia). *Correlations are based on 10-years of monthly returns. Guide to the Markets – Australia. Data as of 30.09.2020.

 

KEY LEARNINGS

Market volatility and lower yields^^ are expected to stay. It’s time to embrace the challenges, differentiate and invest where opportunities can be found via an unconstrained and flexible approach.

 

^Diversification does not guarantee investment return and does not eliminate the risk of loss.
^^ Yield is not guaranteed. Positive yield does not imply positive return.

Fixed Income Capabilities

Proprietary Research Risk Management Team Approach Diversification Framework
Proprietary Research

Our research encompasses fundamental, quantitative and technical analysis

Fundamental

  • Macroeconomic data
  • Corporate health figures
  • Environmental, social and governance practices

Quantitative (valuations)

Rich or cheap valuation on:

  • Absolute basis
  • Relative basis (historical and cross-sector)

Technicals

  • Supply and demand dynamics
  • investor positioning and momentum
Risk Management

Integrated, multi-layered risk management

Multi-dimensional risk management is embedded at every stage of our investment process. Portfolio managers have ultimate responsibility for investment risk, with an embedded risk management function and an independent risk team providing additional layers of oversight.

The portfolio risk management process includes an effort to monitor and manage risk, but does not imply low risk.

Team Approach

Access to the power of a globally integrated team of investment professionals

274

Investment professionals* across sectors and markets

9

Investment locations

US$629 billion

Asset Under Management^

* Includes portfolio managers, research analysts, traders and investment specialists with VP title and above.
^ AUM figures are representative of assets managed by the Global Fixed Income, Currency & Commodities group and include AUM managed on behalf of other J.P. Morgan Asset Management investment teams.
Source: J.P. Morgan Asset Management, as of 30.06.2020.

Diversification Framework

J.P. MORGAN ASSET MANAGEMENT'S FIXED INCOME FUNDS


J.P. Morgan Asset Management employs a diversification framework that spans the entire fixed income universe. Every stage and component of the triangle can contribute to your portfolio's risk-adjusted returns.

TIMELY MARKET INSIGHTS

Empower better fixed income decisions with our insights and resources.

Weekly Bond Bulletin

Each week J.P. Morgan Asset Management's Global Fixed Income, Currency and Commodities group reviews key issues for bond investors through the lens of its common Fundamental, Quantitative Valuation and Technical (FQT) research framework.

Read More

Global Fixed Income Blog

Perspectives from our Global Fixed Income, Currency & Commodities Group

Read More

Global Fixed Income Views

Themes and implications from the Global Fixed Income, Currency & Commodities Investment Quarterly meeting.

Read More

 .

ACTIONABLE INVESTMENT IDEAS

What’s in store for bonds in 1Q 2021 as economies reopen?

1Q 2021 bond themes and potential opportunities as economies reopen.

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Outlook 2021: portfolio positioning with ‘G.P.S.’

Uneven recoveries in 2021 would imply the need for more active management.

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Year ahead 2021: seeking clarity amid macro uncertainty

As market volatility could persist in 2021, how can investors cut through the fog of uncertainty?

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Outlook 2021: investment themes in a ‘new normal’

How a ‘new normal’ could shape investing in equities, fixed income and multi-asset solutions.

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Keeping a longer investment horizon as events unfold in China and the US

What are the investment implications of China’s new economic blueprint and the US elections?

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What do the As and Bs in bond credit ratings mean for investors

Understand bond credit rating and broaden potential income opportunities.

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Building a stronger income portfolio as rates stay low

A persistent and flexible strategy has become more important ever in seeking income.

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What’s ahead for investing as Election Day approaches

With less than a month to go before the US elections, we look at the investment implications for 5 major economic sectors.

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Risks and potential opportunities for bonds in 4Q 2020

The potential opportunities and risks in bonds in the last stretch of 2020.

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Securitisation 101: making optimal use of securitised debt

Let’s explore the role securitised debt could play in an investment portfolio.

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How bonds could fare as the global economy recovers

Seeking potential opportunities in global fixed income as economic activity resumes

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Making the most of bond opportunities as the pandemic subsides

Positioning to tap bond market opportunities as economies reboot as the pandemic subsides.

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Aiming high when yield stays low

Yield can still be found in a low rate environment but requires moving along the risk spectrum.

Read more

Dynamic fixed income allocation in a volatile market

A dynamic approach to fixed income allocation is key when markets are volatile.

Read more

2Q 2020 bonds: weathering a market storm

Diversifying across fixed income, with a quality tilt, could help build portfolio resilience.

Read more

1Q 2020 bonds: where we see opportunities

Time to reposition fixed income as the economy bottoms out and recession risk wanes.

Read more

Securitisation: Then and now

The securitisation market has regained much ground in the past decade.

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Securitisation 101: What are ABS and MBS?

Fixed income isn’t just government or corporate bonds, it also includes non-traditional debt securities.

Read more
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For more information, please call or email us. You can also contact your J.P. Morgan representative.

1800 576 100 (Application enquiries)

1800 576 468 (General enquiries)

jpmorganam@jpmorgan.com

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