The 3 principles of long-term investing over a financial life cycle
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Key takeaways:
- Asian bonds could act as a diversifer in a portfolio as they offer relatively attractive income potential, while exhibiting lower correlation to some developed market assets.
- Over the past decade, Asia’s bond markets have grown significantly1, spanning a diverse range that offers investors more fixed income options.
- A flexible and diversified bond strategy helps manage risks while seeking compelling income potential.
With economic activities disrupted around the world, major central banks have continued to pursue monetary easing policies to sustain growth, with some developed markets keeping policy rates near zero. Currently, almost US$13 trillion2 worth of global bonds are negative-yielding.
1. Lower correlation drives income diversification
In a low rate environment, the yield potential of Asian bonds remains relatively attractive. The yields of some Asian government bonds, for example, are higher than their developed-market peers.
Government bond yields across Asia and major developed markets3
Meanwhile, various Asian bonds exhibit lower, or negative correlation to US Treasury with relatively attractive historic returns. Five-year annualised returns4 of various Asian bonds were over 4.5%, higher than the inflation rate5 in Hong Kong over the same period. This could help investors seek relatively attractive income opportunities in a low rate environment.
Separately, Asian US-dollar (USD), investment-grade (IG) corporate bonds are less correlated to equities. In fast-changing markets, taking a diversified approach across Asian bond sectors could offer diversification benefits to the overall portfolio.
Asian fixed income: correlation versus other asset classes and performance4
2. Spanning a diverse range
The Asian bond market comprises a broad spectrum of fixed income sectors, including developed and emerging market issuers, as well as government and corporate issues. Asian bonds are also available in different currencies and credit ratings.
Asia’s bond markets have grown significantly over the past decade, where growth of both USD and local currency bonds have increased multifold. Take the local currency bond market as an example, assets in this market increased 250% over the past 10 years to about US$16 trillion1.
Previously, the Asian local currency bond market was more concentrated on sovereign bonds but the portion of corporate bonds has grown in recent years. The share of corporate bonds in the Asian local currency bond market has increased to almost 40% in March 2020 from less than 30% a decade ago6, offering a broader range of options for investors.
3. Why invest in the JPMorgan Asian Total Return Bond Fund?
A flexible Asian bond strategy
A robust Asian bond strategy would require the flexibility to optimise investment ideas across a wide range of opportunities available in the region.
Without benchmark constraints, the Fund invests flexibly in fixed income sectors such as USD Asian credit, local currency bonds and convertibles. In addition to investing in Chinese bonds, the Fund also focuses on Indian and Indonesian bonds which offer relatively attractive yields, striving for competitive total returns.
Market breakdown7
Sector breakdown7
As market uncertainties persist globally, our portfolio managers focus on identifying bond issuers with relatively healthy balance sheets and fundamentals, seeking to enhance the overall credit quality of the portfolio while striving for attractive income opportunities.
^ Source: J.P. Morgan Asset Management, Moody’s, S&P, Fitch, China local rating agency, as of end-June 2020. To calculate portfolio credit quality, China local rating agency scale is translated into international rating agency scale. The credit rating is based on the highest of different rating agencies. Average rating is the weighted average of the credit ratings of bond holdings (including non-rated bonds) and net liquidity.
# Source: J.P. Morgan Asset Management, Morningstar, Inc, Asia Bond Category of HK SFC authorised funds (as of end-June 2020, NAV to NAV in USD with income reinvested). SFC authorisation is not a recommendation or endorsement of a scheme nor does it guarantee the commercial merits of a scheme or its performance. It does not mean the scheme is suitable for all investors nor is it an endorsement of its suitability for any particular investor or class of investors. Volatility based on monthly data of the USD (mth) Class.
* Annualised distribution of USD (mth) Class. Ex-dividend date: 30.06.2020. Positive distribution yield does not imply positive return. Annualised yield = [(1+distribution per unit/ex-dividend NAV)^12]-1. The annualised dividend yield is calculated based on the monthly dividend distribution with dividend reinvested, and may be higher or lower than the actual annual dividend yield. High-yield credit refers to corporate bonds which are given ratings below investment grade and are deemed to have a higher risk of default. For illustrative purposes only, exact allocation of portfolio depends on each individual’s circumstances and market conditions.
Other characteristics of the Fund:
Attractive income opportunities
The Fund offers monthly distributing share classes*, providing attractive income opportunities. In addition, the Fund is available in USD and HKD Classes, alongside AUD Hedged, CAD Hedged, NZD Hedged, RMB Hedged and GBP Hedged Classes, to help meet investors’ need for different currencies. (*Aim at monthly distribution. Dividend rate is not guaranteed. Distributions may be paid from capital Refer to important information 3.)
Actively managed portfolio
The exposure to multiple sectors within Asia helps the Fund optimise the unique characteristics of the Asian fixed income spectrum for potential returns. The investment team actively manages currency exposures and durations, taking a strategic approach to manage risk while seeking opportunities.
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Diversification does not guarantee investment return and does not eliminate the risk of loss.
1. Source of Asian USD bond market size: J.P. Morgan, as of March 2020. Asian USD bond market size is represented by the market value of J.P. Morgan Asia Credit Index. Source of Asian local currency bond market size: Asia Bond Monitor Summer Issue released in 2010 and 2020 by the Asian Development Bank. Data as of March 2020.
2. Source: Bloomberg Finance L.P., ICE BofA Merrill Lynch, J.P. Morgan Asset Management. Data reflect most recently available as of 30.06.2020.
3. Source: Bloomberg, as of end-June 2020. Yield is not guaranteed. Positive yield does not imply positive return. Past performance is not a reliable indicator of current and future results.
4. IG: investment grade. HY: high yield. Source: Bloomberg, J.P. Morgan, as of end-June 2020, calculated using monthly returns in USD. Indices used: J.P. Morgan Asia Credit Investment Grade Index (USD Asian IG bonds), J.P. Morgan Asia Credit High Yield Index (USD Asian HY bonds), J.P. Morgan Asia Diversified Index (Local currency Asian bonds), ICE BofA US Treasury Index (10-year US Treasury), MSCI World Index (Developed-market equities), S&P 500 Index (US equities). Past performance is not indicative of future performance. Indices do not include any fees or operating expenses and are not available for actual investment.
5. Source: Census and Statistis Department of Hong Kong. Composite Consumer Price Index of Hong Kong: 2.9% (2019), 2.4% (2018), 1.5% (2017), 2.4% (2016), 3.0% (2015).
6. Source: Asia Bond Monitor Summer Issue released in 2010 and 2020 by the Asian Development Bank. Data as of March 2020.
7. Source: J.P. Morgan Asset Management, as of 30.06.2020. Holdings, exposures and allocations for actively managed portfolios are subject to change from time to time. These represents Global Fixed Income, Currency & Commodities team’s views under current market conditions, subject to change from time to time. Provided for information only, not to be construed as investment advice. Diversification does not guarantee investment return and does not eliminate the risk of loss.
Provided for information only based on market conditions as of date of publication, not to be construed as investment recommendation or advice. Forecasts/ estimates may or may not come to pass.
Investment involves risk. Not all investments are suitable for all investors. Past performance is not a reliable indicator of current and future results. Please refer to the offering document(s) for details, including the risk factors. Investors should consult professional advice before investing. Investments are not similar to or comparable with fixed deposits. The opinions and views expressed here are as of the date of this publication, which are subject to change and are not to be taken as or construed as investment advice. Estimates, assumptions and projections are provided for information only and may or may not come to pass. This document has not been reviewed by the SFC. Issued by JPMorgan Funds (Asia) Limited.
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