The 3 principles of long-term investing over a financial life cycle
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Where could we turn to for yield2 in a low rates environment? The global economy and markets have been flooded with liquidity as the US Federal Reserve and more than 40 central banks globally have cut rates at a combined 60-plus times5 in 2019.
While the risk of recession has eased on the back of the supportive monetary policy, this has brought down yields in most fixed income sectors.
For example, the yield for US Treasury, which is solely affected by interest rate movements, fell to 1.8% in the fourth quarter of 2019 from 2.4% in the first quarter that same year6. Yields for extended fixed income sectors such as US HY and emerging market debt (EMD) also declined, as the chart shows.
Yields of various fixed income sectors declined6
With global policy rates likely to maintain at low levels in the medium to long term, the search for yield2 to help tackle negative real interest rates could intensify. But we believe it is key to focus on quality fixed income, without overstretching for yield.
Average annual real deposit rate of Asian markets7
Capture multiple income opportunities with JPMorgan Funds – Income Fund
The JPMorgan Funds – Income Fund strives to be risk-optimised, investing opportunistically across multiple debt markets and sectors with a view to making portfolio income a viable outcome4.
The Fund invests in debt securities that our Global Fixed Income, Currency & Commodities (GFICC) team believes could have higher potential to produce income, and have lower or negative correlations to each other in order to reduce risk through diversification3.
By investing in a broad range of sectors and harvesting risk premiums across fixed income markets globally, our GFICC team believes the portfolio is better positioned to optimise yield2 with lower volatility, compared to single sectors or other focused strategies.
Income Fund invests across the fixed income spectrum
As of end-November 2019, the Fund’s A (acc) – USD share class managed to keep an annualised three-year volatility at around 2.2%8 while the Fund’s A (mth) – USD share class delivered an annualised yield of about 5.2%*9 (*Aim at monthly distribution. Dividend rate is not guaranteed. Distributions may be paid from capital. Refer to Important Information 3).
As shown in the chart below, US HY bonds generated a yield of 5.6% as of end-November 2019, but its volatility stood at 5.3%10. On the contrary, volatility for global IG bonds stood at 4.1% but had a lower yield of about 2.3%10.
Yields and volatility of different fixed income sectors10
Explore our investment solutions
In an environment where rates are likely to stay low, we believe the search for yield is still possible but it may require moving along the risk spectrum. A flexible fixed income strategy that invests opportunistically across multiple debt sectors and markets could help capture a broader set of potential income sources while managing risk.