Introducing the JPM Global Macro Opportunities Fund - J.P. Morgan Asset Management
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Introducing the JPM Global Macro Opportunities Fund

Contributor JPMAM UK
A focus on macro themes

The JPM Global Macro Opportunities Fund aims to provide positive returns over a rolling three-year period while managing volatility, regardless of the market environment.

The fund uses a research-oriented global macro approach to capitalise on the opportunities created by eight compelling macro themes (Exhibit 1). These are reflected in the portfolio using a broad range of investment strategies and financial instruments within a risk-controlled framework.

The result is a natural portfolio diversifier that is able to achieve a low correlation to equities and bonds when they look less attractive.

Exhibit 1: Eight macro themes of the JPM Global Macro Opportunities Fund

Source: J.P. Morgan Asset Management as at 31 December 2015. For illustrative purposes only.

How does the fund work?

The JPM Global Macro Opportunities Fund’s team of macro investors can use a broad range of strategies and financial instruments to capitalise on opportunities within the macro themes.

Like traditional long-only funds, this can mean investing directly in equities and fixed income. However, unlike traditional long-only funds, the fund has the flexibility to employ strategies that can help manage risk and generate returns even when markets are volatile, such as relative-value trades and derivative instruments.

Exhibit 2 outlines the different investment strategies and instruments that can be used by the fund and brings them to life with relatable examples.

Exhibit 2: Portfolio of diverse investment strategies

Applying the themes

In the JPM Global Macro Opportunities Fund every investment strategy reflects at least one macro theme.

Exhibit 3 shows an example of how the fund could access opportunities created by the “China in Transition” theme.

Exhibit 3: Portfolio of diverse investment strategies

 

Please note that the examples are for illustrative purposes only and do not necessarily represent actual trades implemented in the fund.

Why should your clients consider the fund?

1. Higher risk-adjusted returns

In today’s higher volatility, lower return environment, a traditional balanced approach is unlikely to deliver the returns that your clients have enjoyed in the past. The JPM Global Macro Opportunities Fund aims to provide a solution by targeting positive returns while managing volatility.

Exhibit 4: Risk-adjusted returns of a 50/50 portfolio
Sharpe ratio of a portfolio of 50% global equities and 50% global bonds*

Source: MSCI, J.P. Morgan Asset Management as at December 2015.

*The equity index is the MSCI World (EUR hedged) and the bond index is the JP Morgan Global Bond index (EUR hedged). Sharpe ratio is calculated as (Return – Risk free rate) / Volatility.

What does the chart show?

Exhibit 4 shows the Sharpe ratio (a common measure of risk-adjusted return) over three years and five years for a portfolio constructed from 50% global equities and 50% global bonds.

What does this mean for an investor?

Both bonds and equities have delivered strong returns in the relatively calm market environment of the last few years.

However, more challenging markets in the second half of 2015 (as circled in Exhibit 4), has led to a sharp decline in the risk-adjusted return produced by a traditional 50/50 balanced portfolio of global equities and global bonds.

How does this relate to the fund?

A traditional 50/50 portfolio is unlikely to generate the same risk-adjusted returns as it did in the past.

In seeking positive returns and managing volatility within a sophisticated risk management framework the fund can help clients achieve enhanced diversification with lower correlation to equities and bonds when they look less attractive.

2. Enhanced diversification

Investors have historically focused on using fixed income as a diversifier to the equities in their portfolios, but in recent history there have been a number of occasions when the traditionally negative correlation between the two asset classes has broken down.

The JPM Global Macro Opportunities Fund does not only invest in equities and fixed income, but can dynamically shift exposures across a much broader range of investments. This dynamism enables the fund to be lowly correlated to traditional assets when they look less attractive, and to draw on a number of sources of diversification beyond just the negative correlation between equities and fixed income.

Exhibit 5: Three-month stock and bond correlations
Total return on US equities (S&P 500) and US Treasuries (10-yr)

Source: Bloomberg, J.P. Morgan Asset Management as at 31 December 2015. Guide to the Markets – UK, slide 67.

What does the chart show?

Exhibit 5 shows how the correlation (a statistical measure of how two asset prices move in relation to one another) between equities and fixed income fluctuates significantly over time.

What does this mean for an investor?

In an ideal world, the traditionally negative correlation between equities (stocks) and fixed income (bonds) would hold. This would mean that if stocks sell off then bonds would rise and help to offset those losses for a balanced investor.

In practice, this relationship can be volatile and can even break down, seeing stocks and bonds sell off together. History suggests that stocks and bonds often have a positive correlation at times when investors need the benefits of diversification most. In the summer of 2015 for example (as circled in Exhibit 5), when global stock markets fell sharply, bonds also suffered large declines, meaning that investors received none of the diversification benefits of investing in bonds.

How does this relate to the fund?

The fund can provide a greater degree of diversification to your clients’ traditional portfolios by using a vast investment opportunity set and flexibly shifting exposures to reflect the team’s macro views and current dynamics.

The fund can help add diversification to your clients’ portfolios by generating returns that have low correlations to equities and fixed income.

Diversification does not guarantee investment returns and does not eliminate the risk of loss.

Find out more about the JPM Global Macro Opportunities Fund  

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Important information

Please be aware that this material is for information purposes only. Any forecasts, figures, opinions, statements of financial market trends or investment techniques and strategies expressed are, unless otherwise stated, J.P. Morgan Asset Management’s own at the date of this document. They are considered to be reliable at the time of writing, may not necessarily be all-inclusive and are not guaranteed as to accuracy. They may be subject to change without reference or notification to you. JPMorgan Asset Management Marketing Limited accepts no legal responsibility or liability for any matter or opinion expressed in this material.

The value of investments and the income from them can fall as well as rise and investors may not get back the full amount invested. Past performance is not a guide to the future.

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