2022 outlook: what’s top of mind for income & growth?
We share our perspectives on the investment landscape for 2022 and the opportunities for income and growth.
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BROADENING FIXED INCOME SOURCES IN AN INFLATIONARY WORLD
Investors may face the prospect of another year of negative real cash returns in 2022, or possibly longer. This means staying invested and looking for assets that generate income will be important to ensure the overall portfolio’s purchasing power is not eroded by inflation.
Even as inflationary pressure is building up in certain regions, and some central banks are considering raising rates, we believe that any such moves are likely to be gradual.
As investors intensify the search for high-grade and high-yield1 allocation ideas2, it’s crucial to employ an unconstrained and flexible approach to differentiate and invest where opportunities can be found.
Market expectations** for policy rates
Source: J.P. Morgan Asset Management, Bloomberg. Data reflect most recently available as of 29.11.2021.
**Expectations are derived from the 3-month moving average of the overnight index swap (OIS) forward rates. Past performance is not a reliable indicator of current and future results . Forecasts, projections and other forward looking statements are based upon current beliefs and expectations. They are for illustrative purposes only and serve as an indication of what may occur. Given the inherent uncertainties and risks associated with forecast, projections or other forward statements, actual events, results or performance may differ materially from those reflected or contemplated.
WHY GLOBAL FIXED INCOME WITH BROAD-BASED APPROACH?
Unconstrained approachInvesting opportunistically across multiple debt markets and sectors without benchmark constraints, we harness our top convictions to capture attractive income opportunities while managing risk through diversification. Employing an unconstrained approach, we navigate dynamically across the fixed income spectrum as market conditions change.
A wide spectrum of fixed income sectors
Source: J.P. Morgan Asset Management. This information is provided for illustrative purposes only. Information shown is based upon market conditions at the time of the analysis and is subject to change. Not to be construed as investment recommendation.
Different bonds react differently as market conditions change. With flexible allocations across sectors and geographies, JPMorgan Funds – Income Fund seeks to minimise fluctuations in dividend payments of its monthly distribution share classes* under different market conditions. (*Aim at monthly distribution. Dividend rate is not guaranteed. Distributions may be paid from capital.Refer to important information 3)
In anticipation of rising rates, shorter duration holdings and high-yield1 credit are currently our high-conviction ideas2.
With a flexible strategy, the Fund invests opportunistically across different sectors to seek optimal income potential even as interest rates change.
Seeking yield across individual fixed income sectors
Source: Barclays, Bloomberg Finance L.P., FactSet, ICE BofA Merrill Lynch, J.P. Morgan Economic Research, J.P. Morgan Asset Management. Based on Bloomberg Barclays US Aggregate Credit – Corporate Investment Grade Index (US IG), Bloomberg Barclays Euro Aggregate Credit – Corporate (Europe IG), J.P. Morgan Asia Credit Investment Grade Index (Asia IG), Bloomberg Barclays Global Aggregate – Corporate (Global IG), Bloomberg Barclays US Aggregate Credit – Corporate High Yield Index (US HY), Bloomberg Barclays US Aggregate Securitised – Asset Backed Securities (US ABS), Bloomberg Barclays Pan European High Yield (Europe HY), J.P. Morgan Asia Credit High Yield Index (Asia HY), ICE BofA Global High Yield (Global HY), J.P. Morgan GBI-EM (Local EMD), J.P. Morgan EMBI Global (USD EMD), J.P. Morgan Asia Credit Index (JACI) (USD Asia Credit), J.P. Morgan Asia Credit China Index (USD China Offshore Credit). Duration is a measure of the sensitivity of the price (the value of the principal) of a fixed income investment to a change in interest rates and is expressed as number of years. Yields are not guaranteed, positive yield does not imply positive return. Past performance is not a reliable indicator of current and future results. Data reflect most recently available as of 30.09.2021.
What is duration?
In fixed income investing, duration is a gauge of interest rate risk, showing how bond prices and yields will likely change when interest rates move. Generally, longer duration bonds may suffer more price decline in response to a rise in interest rate.
Currently, inflationary pressure is building up in some economies including the US. The Federal Reserve has started to roll-back its stimulus measures in response, with rate hikes likely in 2022. This highlights the importance of a flexible and dynamic approach to duration management.
How we manage duration?
As the movement of interest rates can have significant impact on a fixed income portfolio, we strive to manage these risks6 by adjusting duration. As illustrated in the chart, we are building up short positions in US Treasury futures to manage the risk of rising yields.
With active duration management, the Fund can continue its pursuit of high-conviction ideas across the fixed income spectrum even as rates change.
Actively managing duration
Source: J.P. Morgan Asset Management. Data as of 31.10.2021. The Fund is an actively managed portfolio, holdings, sector weights, allocations and leverage, as applicable are subject to change at the discretion of the Investment Manager without notice. Duration is a measure of the sensitivity of the price (the value of the principal) of a fixed income investment to a change in interest rates and is expressed as number of years.
OUR FIXED INCOME CAPABILITIES
FIXED INCOME CAPABILITIES
Global expertiseACCESS TO THE POWER OF A GLOBALLY INTEGRATED TEAM OF INVESTMENT PROFESSIONALS
■ Includes portfolio managers, research analysts, traders and investment specialists with VP title and above.
^ Includes assets managed on behalf of other J.P. Morgan Asset Management investment teams.
Source: J.P. Morgan Asset Management, as of end-March 2021.
Our research emcompasses fundamental, quantitative and technical analysis
FUNDAMENTAL
- Macroeconomic data
- Corporate health
- Environmental, social and governance (ESG) profile5
QUANTITATIVE
- Proprietary Quantitative Research (QRG) models inform valuation of sector or security
- Absolute, relative, historical basis
TECHNICALS
- Supply and demand dynamics
- Investor positioning and momentum
Our risk management6 discipline is essential to our investment process
- High-yield credit refers to corporate bonds which are given ratings below investment grade and are deemed to have a higher risk of default. Yield is not guaranteed. Positive yield does not imply positive return.
- 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.
- Source: J.P. Morgan Asset Management as of 30.09.2021. Includes portfolio managers, research analysts, traders and investment specialists with VP title and above.
- Source: J.P. Morgan Asset Management as of 30.09.2021. AUM figures are representative of assets managed by the Global Fixed Income, Currency & Commodities group and include AUM managed on behalf of other J.P. Morgan Asset Management investment teams.
- The manager seeks to integrate environmental, social and governance (“ESG”) factors in the investment process. ESG integration is the systematic integration of material ESG factors in company/issuer selection through research and risk management. It involves proprietary research on financial materiality of the ESG factors in relation to the relevant company/issuer and discretion to invest regardless of whether the company/issuer may be positively or negatively impacted by the ESG factors. Integration of ESG factors in the Fund’s investment process does not imply the Fund incorporates ESG factors as its key investment focus. The Fund is not authorised as an ESG fund by the Securities and Futures Commission, nor is it being marketed as an ESG fund.
- The portfolio risk management process includes an effort to monitor and manage risk, but does not imply low risk.
Diversification does not guarantee investment return and does not eliminate the risk of loss. Indices do not include fees or operating expenses and are not available for actual investment. Forecasts, projections and other forward looking statements are based upon current beliefs and expectations. They are for illustrative purposes only and serve as an indication of what may occur. Given the inherent uncertainties and risks associated with forecast, projections or other forward statements, actual events, results or performance may differ materially from those reflected or contemplated. 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 circumstances and market conditions.
For more information, please contact your bank or financial adviser, or J.P. Morgan Asset Management directly.