In today’s environment, we believe the flexibility of active management, combined with the advantages of the ETF wrapper can help investors better capture the opportunities, and manage the risks, that exist across the euro corporate bond landscape.

Active managers can avoid the limitations of passive corporate bond portfolios

While passive corporate bond strategies may offer simplicity, the debt-weighted construction of fixed income indices means that passive corporate bond portfolios will have their biggest allocations to companies with the highest debt, not necessarily those that are the most creditworthy or offer the highest return potential. Active portfolios, on the other hand, can seek out the strongest issuers and most attractive securities from across the market and capital structure.

Also, because passive strategies are designed to track the market as a whole, without distinguishing between individual bonds based on their liquidity, downgrade risk, or environmental, social and governance (ESG) factors, they will tend to miss the early signs of improvement, or deterioration, in credit quality. By contrast, active strategies have the opportunity to manage these risks and spot alpha opportunities through rigorous fundamental research.

An active approach is particularly crucial for euro corporate exposure

When it comes to the euro corporate bond markets, the importance of active management is even more pronounced when compared to other regions. The euro market is much more fragmented, with smaller issuer sizes and frequent off-benchmark issues meaning that passive strategies will naturally miss out on opportunities. Issuers also span a wide geographic range, from core European countries to the periphery, and companies across the globe that are looking to issue debt in euros.

We’ve seen a theme emerge in euro corporate markets over the last decade and accelerating throughout 2025 that favours active management: the increase in US companies issuing euro-denominated debt. The share of so-called “Reverse Yankee” supply has risen to its highest level in the past five years, driven primarily by opportunistic issuance due to lower euro coupons. These US companies typically have overseas operations that the proceeds support – for example, in 2025 we saw inaugural deals from Alphabet and Pfizer, as well as merger-related issuance from J&J and IBM.1 The surge in Reverse Yankee issuance across various maturities has enhanced both the liquidity and diversification of the euro corporate bond index.

The below chart displays the largest 7 countries represented within the Euro Corporate Bond Index in 2012 versus 2025. Whilst France and Germany remain the key large issuing countries with relatively stable market share over the past 13 years, the amount of US issuance within the index has almost doubled over this period, as countries such as the Netherlands, Italy, and UK have lost relative momentum. This theme highlights further the importance of a global team with local expertise spanning multiple regions to ensure issuers are covered across the globe and issues are analysed across currency denominations.

Multiple regulatory regimes—including the greater focus placed on ESG in Europe—add further complexity, influencing how euro corporate bonds are issued, traded and held. At the same time, liquidity conditions can be less predictable, with buy-and-hold strategies common among European investors and regulations such as MiFID II reducing banks’ willingness to provide liquidity. As a result, trading can be more challenging, and price dispersion more pronounced.

Capitalise on euro corporate bond opportunities with JREB

Our euro corporate ETF solution, JPM EUR IG Corporate Bond Active UCITS ETF (JREB) capitalises on these active opportunities by leveraging the expertise of J.P. Morgan’s global team of credit analysts, providing detailed coverage of the entire euro-denominated universe, regardless of a company’s domicile.

By conducting thorough credit analysis and monitoring market developments, JREB aims to identify mispriced securities, avoid credits that are showing signs of weakness, and seek out attractive opportunities across the curve and the capital structure—looking not just at the issuer level, but at the individual issues of each company to generate strong risk adjusted returns.

JREB’s recent positioning in the European autos sector illustrates how our active, research-based approach can add value for clients. In May 2025, at a time when the autos sector was oversold in the market due to concerns over US tariffs and fierce Chinese competition, our fundamental research and proprietary issuer ranking system identified Volkswagen (VW) as an opportunity.

The new regulations making European CO2 targets flexible was a significant benefit for VW given it was likely to be hit by fines in case of missing the targets. The company was also backed by resilient financials, effective cost reduction and strong net industrial liquidity. Our investment team noted VW’s proactive strategies for mitigating tariffs, optimising production and relocating operations. 

Add value through dynamic positioning

Identifying an investment opportunity is, however, only part of the story. Active credit managers also need to find the most attractive securities issued by the company that will allow them to best express their view. JREB is fortunate to benefit from deep fundamental research expertise, which was able to pinpoint the most attractive place to invest in Volkswagen’s capital structure.

Recognising emerging tailwinds from European fiscal policies and regulatory changes, JREB’s investment team focused on VW’s hybrid green bonds. European hybrids have been among our team's best ideas, as they can offer an additional 200-250 basis point yield pickup versus their senior counterparts to compensate investors for the increased volatility. Essentially, these hybrids replicate the yield and spread characteristics of high yield bonds, but are backed by investment grade issuers. Our team is happy to move down the capital structure and invest in hybrid bonds of names in which we have strong conviction owing to solid company fundamentals.

We raised our credit score on VW hybrids and, in May 2025 participated in the VW 5.493% 12/49 hybrid new issuance – a green bond which offered a compelling spread pickup over senior debt, an attractive reset feature, and pari-passu status with senior unsecured bonds, meaning they have equal repayment priority. Technical factors, including Volkswagen’s plans to reduce overall hybrids outstanding, further enhanced the issue’s credit profile.

By participating in the Volkswagen hybrid new issuance, JREB was able to pick up significant spread vs. its benchmark (the Bloomberg Euro Corporate Bond Index). Since issuance, the VW hybrid green bond has outperformed the benchmark, tightening 83 basis points as of 31 December, vs. 23 basis points for the benchmark over the same period.2 This outcome underscores how active management—through deep research and precise security selection—can deliver results that passive strategies are unable to match.

JREB: An active ETF solution for euro corporate investors

The JPM Euro IG Corporate Bond Active UCITS ETF (JREB) brings the best of J.P. Morgan’s euro fixed income expertise to the rapidly expanding active ETF market, targeting a return of 25-50 basis points above its benchmark (Bloomberg Euro Corporate Bond Index).

To create alpha, JREB’s experienced portfolio management team leverages the deep fundamental research and robust sector allocation expertise of our team of 20 career investment grade credit analysts. With an average industry tenure of 22 years, our research team covers over 80% of the investment grade index, ranking sectors as well as issuers and issues using a combination of bottom-up and top-down analysis. Returns are generated from asset allocation, market allocation, sector allocation and security selection.

Within our Euro Corporate strategies we expect security selection at both the ticker and individual issue level to be a primary alpha driver. This was demonstrated in our flagship JPMorgan Funds - Euro Corporate Bond Fund SICAV, which has been actively managed since 2009.

JREB is managed by the same investment team and leverages the same investment approach as our flagship JPMorgan Funds - Euro Corporate Bond Fund SICAV. Our research driven, team-based process has generated consistent risk-adjusted returns over multiple market cycles, with security selection being a key alpha driver. Investors should note that the SICAV can invest up to 20% in high yield securities. JREB, by contrast, is purely focused on investment grade securities, at the time of purchase, thus retaining a similar investment universe to its passive counterparts and offering a compelling active building block for core European fixed income allocations.

Speak to your J.P. Morgan Asset Management representative to find out more about our active euro corporate bond ETF.

Sources:

1. The securities above are shown for illustrative purposes only. Their inclusion should not be interpreted as a recommendation to buy or sell.
2. Past performance is not a reliable indicator of current and future results.