Growth in focus: finding the ace among A-Shares
Amid China’s long-term structural growth trends, which are the sectors that could stand out in the A-Share market?
Most investors love yield. And with the global economy losing momentum alongside an uncertain investment outlook, they are increasingly looking at flexible strategies that can invest across asset classes for potential opportunities, without overstretching for yield.
Our MAS team holds the view that having less volatile fixed income assets may help buffer against a relatively riskier equity exposure, building resilience in a portfolio.
In a well-diversified1 multi-asset strategy, yield opportunities could be found within a single asset class such as fixed income, but requires moving along the risk spectrum. Still, it is important to focus on quality while seeking yield within fixed income.
Our MAS team invests dynamically in multiple fixed income sectors. There are varying yield opportunities among the different types of global bonds, and high-yield bonds have been performing relatively well within the asset class3, as the charts show.
Global bond opportunities and fixed income sector returns4
The current market environment is relatively conducive for higher-yielding fixed income. For example, having US or some European high-yield credit2 selectively with a quality bias, could be a source of diversification1 and income.
Still, investors should be aware that higher yields generally come with increased risk, so yield shouldn’t be the sole consideration. It is important to balance relatively attractive opportunities with holdings of higher credit quality. Investing tactically with the assistance of active management could help investors manage risk.
In the search for income and returns, our MAS team takes a cautious view on risks and asset allocation.
With persisting market uncertainties, our investment team has allocated to fixed income to provide a stronger buffer to a portfolio. For the JPMorgan Multi Income Fund, our MAS team has increased allocation to fixed income from around 40% in December 2017 to more than 50% in August 2019.
Within fixed income, we have found opportunities in corporate credit2, selectively with a quality bias. Our investment team holds the view that global corporate credit markets could still offer relatively attractive potential returns, and remains mindful on default rates.
In this Fund, US corporate high yield covers roughly a quarter of the portfolio, with European high yield at about 5%, as of end-August 2019. High revenue growth over the past few years has enabled US high-yield credit issuers to reduce their borrowing meaningfully, strengthening their balance sheets.
Still, with the US economy moving into the late cycle and market volatility from geopolitical issues, we believe it is important to balance relatively attractive opportunities with more defensive holdings in the search for income.
In the Fund, our MAS team has been de-risking our multi-asset income strategies with more quality in our fixed income allocation. Within high yield, for example, we have rotated some of our US high yield exposure (B) into European high yield (BB-). In our MAS team’s view, quality European high yields can serve as a diversifier to the Fund’s credit allocation and overall portfolio.
Our MAS team believes that high yield credit will trade with a lower volatility relative to equity markets. In an uncertain market, a higher fixed income weighting in a well-diversified1 multi-asset strategy could help cushion volatility of some risk assets. But it is also important to focus on quality while seeking yield within fixed income.
The JPMorgan Multi Income Fund strives to capture income sources globally, dynamically responding to changing market conditions through a well-diversified multi-asset portfolio that seeks attractive income and a balanced risk and return profile.