In uncertain times, government bonds have the potential to provide investors with effective portfolio diversification benefits. However, navigating today’s vast government bond markets can be a challenge, given their sensitivity to macroeconomic and policy shifts.
In this environment, the flexibility of active management, combined with the advantages of the ETF wrapper, really stand out. We’ve taken a closer look at our JPM Global Government Bond Active UCITS ETF (JGOV) and JPM EUR Government Bond Active UCITS ETF (JEUG) to demonstrate how our active approach, based on rigorous fundamental, quantitative and technical analysis, ensures investors are always well positioned as the market backdrop evolves.
Unlock better fixed income opportunities
Fixed income ETFs first began to bring their benefits to investors in 2002. Initially, they were exclusively passive vehicles, mostly used by asset allocators as low fee building blocks, and by model managers to complete portfolios.
More recently, however, the bond market has undergone another evolution with the growth in popularity of actively managed fixed income ETFs. While benefiting from the same liquidity, price discovery and transparency benefits described above, active fixed income ETFs also equip specialist portfolio managers with the flexibility they need to manage risks, capture market inefficiencies, and access areas of the bond market that are not accessible to passive index funds.
As investors come to recognise the benefits of taking an active approach to fixed income investing, flows into active fixed income ETFs are rising fast. So far in 2025, as of 7 August, active fixed income ETFs globally have received $100 billion in flows, out of overall flows of $295 billion. In other words, around a third of all flows globally into fixed income ETFs are now directed towards active strategies – which is up from only around 10% just five years ago. Additionally, in the US, active fixed income ETFs made up 18% of active ETF launches in the past 12 months, while in Europe the proportion was even higher, with active UCITS fixed income ETFs accounting for 41% of launches.
As a result, active ETFs can deviate quite widely from their benchmarks, allowing them to target excess returns and manage risks by adapting their portfolios to changing market conditions, or to target securities that can deliver specific investment outcomes, such as income generation, sustainability, or risk reduction.
For example, an active bond ETF might shift its interest rate sensitivity based on the latest interest rate expectations, rather than simply replicating the interest rate exposure of its benchmark. Similarly, an active equity ETF will look to increase its exposure to securities that are expected to perform well in the future, rather than simply allocating higher weightings to those stocks that have performed well in the past.
Over time, skilled active ETF managers can potentially generate significant excess returns over and above their benchmarks, and provide targeted, research-driven access to a wide range of investment outcomes and opportunities across markets and asset classes.
Introducing JGOV and JEUG, our dedicated government bond ETFs
JGOV and JEUG are designed to provide diversification at the core of an investment portfolio, allowing investors to gain exposure to high quality government and government-guaranteed bonds such as agency, sovereign and supranational debt, with no active currency or corporate risk.
Both ETFs are supported by a proven, repeatable process that mirrors the approach used to manage our existing global government bond and euro government bond mutual funds1. JGOV and JEUG also benefit from the oversight of an experienced team of specialist investors that is responsible for USD 53 billion in dedicated government strategies, supported by the broad market insights from the 310 members of J.P. Morgan’s USD 920 billion Global Fixed Income, Currency & Commodities platform.
The aim is to use our active insights and rigorous investment approach to generate consistent excess returns. JGOV has an alpha target of 50-70 basis points, with a tracking error limit of 100-150 basis points. JEUG has an alpha target of 30-50 basis points, with a tracking error of 60-100 basis points. With no investment minimums, investors of all sizes can benefit from the return potential of both ETFs.
Access portfolio positioning driven by active rates decisions
Compared to equity markets, bond markets are less transparent and more fragmented, making an active management approach essential for identifying value across regions and maturities. In government bond markets, the ability to make efficient and timely adjustments to duration exposure is particularly important, as the presence of non-economic participants can lead to large moves and mispricings.
In JGOV and JEUG, portfolio decisions are driven by our macroeconomic views. Our views are expressed through curve positioning, cross markets, European spreads, and sectors, as well as through duration positioning.2 This approach means that both ETFs will look to adapt to policy changes and generate excess returns by capitalising on inefficiencies across government bond markets.
For example, recent regulatory changes, and reduced demand from pension funds and insurers, have led to lower demand for long-maturity government bonds. This development exposes a key flaw in passive strategies, which remain heavily allocated to long-end bonds even as demand falls and yields increase. In contrast, active management in JGOV and JEUG allows us to adjust our exposure along the yield curve, underweighting the long end and implementing steepener trades when appropriate.
By dynamically adjusting exposure in this way, moving overweight or underweight as market conditions warrant, our active research-driven process is able to deliver tangible value for bond investors. Our positioning in France in 2024 illustrates the advantage of our active approach. In our EU government bond fund, we adopted a bearish stance on French long-end bonds, driven by a negative medium-term fundamental outlook for France. Deteriorating credit conditions, worsening public finances, political risks, and structural economic challenges were evident, yet not fully reflected in valuations.
As our conviction grew, we increased our underweight position in France, reaching as much as 15% below the benchmark in March 2024. This view was expressed through relative value trades against other European countries. Throughout the year, we tactically adjusted our positioning—scaling up or trimming exposure during periods without clear near-term catalysts. One such trade, an underweight position in France versus Germany, followed the first round of snap parliamentary elections on 30 June 2024. The underweight was concentrated in the long end (10-year), while we maintained an overweight on the front end to capture attractive carry and roll opportunities.
Additionally, when constitutional changes to the German fiscal landscape were adopted in February 2025, our global rates team anticipated a steepening of the German yield curve. In JGOV and JEUG, we expressed this view with steepening trades in the 2s10s portion of the curve.
Following the subsequent announcement of an extensive programme of spending commitments and corporate tax cuts by the German government, yields on the 10-year Bund rose by 43 basis points between 28 February 2025 to 6 March 2025, from 2.40% to 2.83% (source: Bloomberg). The 2s10s curve steepened by 20 basis points over the same period. These moves added significant value to our government bond portfolios.
Gain high conviction exposure to multiple alpha sources
As our examples show, JGOV and JEUG will take calculated risks where our conviction is strongest, with positioning diversified across multiple alpha drivers based on rigorous fundamental, quantitative and technical analysis. This broad level of alpha diversification is crucial to the consistency of returns, as can be seen from the contributors to the performance of both our JPMorgan Funds - Global Government Bond Fund and JPMorgan Funds - EU Government Bond Fund over the last 15 years. We can see that each of our performance drivers – duration, cross-market, curve, peripheral Europe – have contributed to relative returns over time.
Consistency is the hallmark of our investment approach
The ability of JGOV and JEUG to take active risk in the right areas is evidenced by a strong information ratio since inception for our global and euro government bond mutual funds. Since their launch back in 2010, JPMorgan Funds – Global Government Bond Fund has recorded an information ratio of 0.76, while JPMorgan Funds – EU Government Bond Fund has an information ratio of 0.65.
Our global and euro government bond mutual funds have also consistently outperformed their respective benchmarks, recording constant excess returns on a three-year rolling basis since their
Find out more about JGOV and JEUG, our new actively managed government bond ETFs
For investors looking to add fixed income diversification to their portfolios, JGOV and JEUG provide active exposure to government bond markets, supported by a long-established investment approach that has a consistent track record of outperformance. Find out more about government bond ETFs and the benefits of active fixed income investing in the ETF wrapper with J.P. Morgan Asset Management.