Governments across the globe have rolled out massive fiscal and monetary policies to sustain economic activities, intensifying the search for higher yield. How are you navigating the income investing landscape and positioning for the new year? We share some frequently asked questions about income investing.

• In an era of ultra-low rates, DM government bond yields remained low but hybrid assets such as preferred equities could still offer opportunities for dividend yield of over 5%². The yield of some fixed income sectors such as US high-yield (HY) bonds recently reached 5.8%². Such sectors can form a part of an overall portfolio. Having a diversified portfolio that taps into multiple income sources across asset classes could help seek income opportunities in a low rate environment while helping to manage risk¹.

• A number of DM government bonds such as the 10-year Japanese government bonds are paying yield near zero. Others such as the 10-year German government bonds are currently negative yielding.
  
• With most DM government bond yields at ultra-low or falling below zero, the downside risk of government bond prices would rise once interest rates increase.
  
• Bond assets have been a source of income over the past 40 years, and bond prices have also risen amid persistent low rates. Based on the current level, there isn’t much room for interest rates to decline further, thus, limiting the role of bonds in risk-hedging.
  
• Income investing strategies are also evolving with a changing income landscape. Relatively attractive income opportunities based on cash and bonds are no longer optimal, compared with 20 years ago. Instead, investing across a broader set of asset classes as a part of the overall portfolio could help capture income opportunities. Some asset classes have their unique features and would respond differently to changing market conditions.
  
  

Where can we find yield opportunities?²

2. Source: Bloomberg Barclays, J.P. Morgan Asset Management. Representative indices: MSCI World High Dividend Yield (Net) Index (Global equities (high dividend)), MSCI Europe High Dividend Yield (Net) Index (European equities (high dividend)), MSCI Emerging Markets High Dividend Yield (Net) Index (Emerging markets (high dividend)), FTSE EPRA/NAREIT Developed Index (Global REITs), iShares US Preferred Stock ETF Index (Preferred equities), Bloomberg Barclays Global Convertibles Index (Convertible bonds), Bloomberg Barclays US Corporate High Yield 2% Constrained Index (US HY), BofA Merrill Lynch Euro Developed Markets Non-Financial High Yield Constrained Index (European HY), J.P. Morgan EMBI Global Diversified Index (Emerging markets debt), Bloomberg Barclays US IG Credit Index (US IG credit), US 10 Year Treasury Index (US 10 Yr) and German 10 Year Treasury Index (German 10 Yr). Data as of 31.10.2020. Indices do not include fees or operating expenses and are not available for actual investment. Yield is not guaranteed. Positive yield does not imply positive return. Investments involve risks and are not similar or comparable to deposits. Provided to illustrate general market trends not to be construed as research or investment advice.

• As a part of the overall portfolio, some assets such as HY bonds could offer relatively attractive yield although their credit risk is also comparatively higher.
• Diversification is key. Some non-traditional assets such as securitised assets could have a relatively lower correlation against risk assets such as HY bonds and equities. In a market downturn, securitised assets have demonstrated relatively more resilient performance, helping to manage risk¹ and could offer income opportunities.
• Instead of focusing on short-term volatility, investors should keep an eye on the long-term trends of asset classes. A multi-asset income portfolio has generally been relatively resilient.

• JPMorgan Multi Income Fund, for example, invests across 80+ markets, covering over 10 asset classes. In addition to bonds and high-dividend stocks, the Fund will also invest flexibly in real estate investment trusts (REITs), convertible bonds, securitised assets and other assets, seeking to capture a wide range of income opportunities across the globe.
• Income investing isn’t necessarily a static strategy, it can also be strategic and dynamic. We employ a flexible approach in income investing by dynamically adjusting allocations based on market conditions, valuations and default rates. For instance, we actively manage HY bonds and consider high-dividend stocks with relatively attractive valuations in our search for higher-yielding opportunities as we also seek to manage risk.

Conclusion
 

With an evolving income investing landscape, keeping a sole focus on traditional income sources is no longer optimal. A flexible strategy that strives to go beyond traditional sectors for a broader set of income sources could help capture income opportunities while helping to manage risk¹.

Provided for information only based on market conditions as of date of publication, not to be construed as investment recommendation or advice.

Yield is not guaranteed. Positive yield does not imply positive return. Diversification does not guarantee investment return and does not eliminate the risk of loss.

1. 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. The portfolio risk management process includes an effort to monitor and manage risk, but does not imply low risk.

Investment involves risk. Not all investments are suitable for all investors. Past performance is not a reliable indicator of current or 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.