<p>Fixed income ETFs powered by active research</p>

An actively managed fixed income ETF is an ETF in which portfolio managers actively select and manage fixed income securities. Unlike a passive ETF, which seeks to track an index, it allows managers to adjust portfolio exposures as market conditions change.

• Active managers are not constrained to replicating a benchmark and can invest across a broader opportunity set.
• They can select individual issuers and securities based on their assessment of risk and return.
• They can adjust portfolio positioning as interest rates, credit conditions and valuations change.
• Active management also provides flexibility to manage portfolio concentrations, including exposure to the most indebted issuers.

Passive fixed income indices can create unintended exposures because the largest weights often go to the biggest debt issuers, regardless of their credit quality. They may also provide only partial access to the wider bond market and leave investors tied to benchmark exposures as conditions change.

• Bond indices are generally weighted according to the amount of debt outstanding, so issuers that borrow the most can receive the largest index weights, regardless of their credit quality.
• Traditional benchmarks may omit parts of the broader fixed income opportunity set, limiting the range of securities available to a passive strategy.
• Passive portfolios remain constrained by the benchmark’s duration, credit and sector exposures, even when market conditions or valuations change.
• Bond markets are large and complex, with securities differing by maturity, credit quality and liquidity, which can make efficient index replication more challenging.

Active fixed income managers can make security-selection and portfolio-allocation decisions rather than simply following the composition of an index. This allows them to respond to changing market conditions and seek opportunities across different parts of the bond market.

• Adjust duration and interest-rate exposure as the economic and market outlook changes.
• Rotate between fixed income sectors as relative opportunities change.
• Adjust credit exposure to reflect changing risks and opportunities.
• Manage overall portfolio risk as market conditions evolve.

Fixed income is well suited to active management because the breadth and complexity of bond markets can give managers opportunities to move beyond benchmark constraints, manage risks and respond to changing market conditions.

• Active managers can reduce exposure to the most indebted issuers and favour borrowers where fundamental research identifies more attractive risk-adjusted opportunities.
• They can invest beyond traditional benchmark boundaries to access a broader range of fixed income opportunities.
• Duration, credit and sector exposures can be adjusted as interest rates, valuations and market conditions change.
• Active security selection can help manage downgrade and default risks while identifying relative-value opportunities across issuers and securities.
• An active ETF combines this investment flexibility with the trading, liquidity and transparency benefits of the ETF structure.

Active fixed income ETFs can be used as building blocks to construct diversified fixed income portfolios. J.P. Morgan Asset Management’s strategic framework for portfolio construction groups active fixed income ETFs into three categories based on the role they can play in a diversified portfolio: Core holdings, core complement and yield enhancement.

• Core holdings typically provide exposure to high-quality securities issued by governments or companies, or aggregate portfolios of investment grade bonds, offering lower-volatility returns and effective diversification from equity holdings. Their role is to act as the stabiliser at the core of a portfolio.
• Core complement ETFs, including ultra-short duration bond ETFs, are designed to target a yield pickup over cash while staying anchored to the role of ballast and consistency.
• Yield enhancement ETFs target higher income and yield than core allocations through exposure to spread sectors and higher-carry strategies.
• The allocation to each category can vary according to the prevailing economic environment and the outlook for interest rates.

J.P. Morgan Asset Management’s active fixed income process combines fundamental, quantitative and technical research to assess individual securities, sectors and broader market opportunities. This research helps portfolio managers assess opportunities and risks and position portfolios as market conditions evolve.

• Fundamental research considers macroeconomic factors such as growth and inflation alongside issuer-level measures including earnings, leverage and default risk.
• Quantitative analysis assesses spreads, yields and valuations on an absolute, historical and relative basis.
• Technical analysis examines supply and demand, issuance, maturities, fund flows and market liquidity.
• Research can inform security selection as well as decisions around sector allocation, duration and overall portfolio risk.

J.P. Morgan Asset Management’s active fixed income ETF range spans core, credit, ultra-short and emerging market strategies, providing exposure across different parts of the fixed income risk and return spectrum.

• Core: global and euro aggregate bonds, alongside global and euro government bond strategies.
• Credit: investment-grade corporate bond strategies across euro, US dollar and global markets, as well as high-yield strategies.
• Ultra-short: short-duration income strategies in US dollars, sterling and euros.
• Emerging markets: active emerging market local-currency debt exposure.