With markets rocked by volatility amid uncertainty over US President Donald Trump’s fast-changing tariffs, a total return strategy backed by income opportunities may allow some investors to stay invested in equities to help achieve their long-term goals.
Important Information
JPMorgan Global Equity High Income Fund
1. The Fund invests primarily (at least 70%) in equity securities of listed companies, globally, and using derivatives where appropriate.
2. The Fund is therefore exposed to risks related to equity, derivatives, concentration, emerging markets, smaller companies, currency, hedging, class currency and currency hedged classes. RMB hedged class also exposes to risks associated with the RMB currency. RMB is currently not freely convertible and RMB convertibility from offshore RMB (CNH) to onshore RMB (CNY) is a managed currency process subject to foreign exchange control policies of and restrictions imposed by the Chinese government. There can be no assurance that RMB will not be subject to devaluation at some point. The Manager may, under extreme market conditions when there is not sufficient RMB for currency conversion and with the approval of the Trustee, pay redemption monies and/or distributions in USD.
3. Where the income generated by the Fund is insufficient to pay a distribution as the Fund declares, the Manager may at its discretion determine such distributions may be paid from capital including realised and unrealised capital gains. Investors should note that the payment of distributions out of capital represents a return or withdrawal of part of the amount they originally invested or from any capital gains attributable to that original investment. Any payments of distributions by the Fund may result in an immediate decrease in the net asset value per unit. Also, a positive distribution yield does not imply a positive return on the total investment.
4. Investors may be subject to substantial losses.
5. Investors should not solely rely on this document to make any investment decision.
JPMorgan Asia Equity High Income Fund
1. The Fund invests primarily (at least 70%) in equity securities of listed companies in Asia (excluding Japan), and using derivatives where appropriate.
2. The Fund is therefore exposed to risks related to equity, derivatives, emerging markets, concentration, smaller companies, currency, liquidity, hedging and class currency.
3. Where the income generated by the Fund is insufficient to pay a distribution as the Fund declares, the Manager may at its discretion determine such distributions may be paid from capital including realised and unrealised capital gains. Investors should note that the payment of distributions out of capital represents a return or withdrawal of part of the amount they originally invested or from any capital gains attributable to that original investment. Any payments of distributions by the Fund may result in an immediate decrease in the net asset value per unit. Also, a positive distribution yield does not imply a positive return on the total investment.
4. Investors may be subject to substantial losses.
5. Investors should not solely rely on this document to make any investment decision.
Staying invested to achieve long-term goals
Throughout history, financial markets have experienced notable volatility spikes, often causing investors to seek defensive assets like cash and high-quality bonds, among others.
Nevertheless, historical evidence indicates that staying invested during market volatility — by managing downside risk through strategic asset selection like income-generating equities and diversification — may be crucial for achieving long-term goals. Since 1988, the S&P 500 has averaged a 14% intra-year drop but ended the year positively 75% of the time1.
This year, we have seen the S&P 500 drop by 12% from 19 February to 15 April, and the MSCI All World Index fall 9.1% over the same period2. With uncertainty likely to persist, where then can investors look to take a more defensive approach when seeking investment opportunities?
Why equity high income strategies may work in the current market environment
Investors may consider a total return strategy to remain invested in equities, rather than trying to forecast market directions. This approach may help in buffering a degree of losses during downturns and potentially result in higher lows and lower highs.
Such a strategy is typically implemented through option overlays. By selling call options3, the strategy may generate additional income while maintaining equity exposure, though it may potentially involve foregoing some capital appreciation.
During periods of volatility and market sell-off, the strategy may provide elevated levels of income by selling options. The option premiums collected, along with the dividends from the equity portfolio, may potentially help in managing downside risk.
Such strategies present an alternative to fixed income by providing yield less correlated to interest rates.
These strategies are designed to be highly liquid and aim to combine equities with options to strike a balance among yield, capital growth, and risk. They seek to present opportunities for income while staying invested in equity markets, by adopting a more defensive approach compared to a traditional long-only portfolio.
The diversified strategy also has the potential to participate in broader market rallies or strive for total returns in choppy markets.
The two building blocks underpinning the strategy:
- An active equity portfolio driven by a bottom-up fundamental research process.
- An options overlay that helps to generate income by selling out-of-the-money-index-level call options.
The result is an equity income strategy that has the potential to present higher income and provide a buffer against price fluctuations when needed by potentially foregoing some capital appreciation.
Our key strategies4 are:
Conclusion
Given the expectations of a volatile market, an income-oriented, high-yielding strategy may add portfolio resilience and allow investors to hold on to their equity exposure3.