Navigating the current investment landscape is very much like working out to keep your body healthy. How, what and when to do certain exercises to stay healthy could be similar to investing and staying invested as market conditions evolve.

You may find that amid uncertain markets, it is still possible to find consistent yields¹ with relatively lower volatility. Instead of focusing on a single asset class, investing across different markets and sectors could help investors, based on their objectives and risk appetite, seek a diversified² pool of income opportunities that have low or negative correlation. 

A diversified² income strategy could be likened to working out at a gym. We share our analogy.

For example, as part of an allocation within a single asset class such as fixed income, US securitised debt could be considered to seek diversification². Securitised assets have been less impacted by geopolitical events and trade tensions compared with other sectors such as corporate credit³.

Agency mortgage-backed securities³ (agency MBS) are a type of securitised debt which could help build portfolio resilience from an allocation perspective. Like US Treasuries, agency MBS historically⁴ exhibited a similar, if not, lower volatility profile. Perceived to have direct or implicit backing from the US government, agency MBS may carry relatively less credit risk which is translated into the slight yield premium it can offer versus US Treasuries. The 12-month rolling average yield of US MBS was about 2.6% as of the end-February 2020, compared with 1.7% of US Treasuries⁴.
 

Read more about our Investment Ideas on Managing Volatility.

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Conclusion

Market volatility and lower yields are here to stay. Investors, based on their investment objectives and risk appetite, could consider diversifying² across different income sources to broaden the potential for more yield¹ opportunities and to help manage portfolio risk.

1. Yield is not guaranteed. Positive yield does not imply positive return.
2. Diversification does not guarantee investment return and does not eliminate the risk of loss.
3. For illustrative purposes only based on current market conditions, subject to change from time to time. Not all investments are suitable for all investors. Exact allocation of portfolio depends on each individual’s circumstance and market conditions.
4. Source: J.P. Morgan Asset Management, Bloomberg, data as of 28.02.2020. 1-year volatility is calculated based on monthly total returns in USD. Indices are represented by Bloomberg Barclays US Mortgage Backed Securities Index and Bloomberg Barclays US Treasury Index (5-7 years). Yield is not guaranteed. Positive yield does not imply positive return. Past performance is not a reliable indicator of current and future results.

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.