Fixed Income
A fixed income strategy provides income via regular coupon payments from bonds. The total return to investors is an amalgam of these regular payments plus any appreciation or depreciation in the price of the bond over the period it is held. The risk/return profile of bonds is typically dependent on two factors:
- Credit quality, which is a reflection of the financial strength of the issuer and,
- Duration, or the sensitivity of the bond to a change in interest rates. Bond prices tend to have an inverse relationship with interest rates, falling when rates rise and rising when rates fall.
Although interest rates have begun to rise, they are still at relatively low levels compared with the historical average. An active approach to fixed income investing can help identify the best opportunities across the credit spectrum, capturing potential in a changing and challenging environment while managing duration and sector exposures with a view to minimising risk.
*Duration is expressed as number of years. Rising interest rates mean falling bond prices, while declining interest rates mean rising bond prices. 10-year data is used to calculate the correlation to the 10-year UST.
Source: Bloomberg Finance L.P., FactSet, J.P. Morgan Economic Research, J.P. Morgan Asset Management. Based on Bloomberg Barclays U.S. Aggregate Credit - Corporate High Yield Index (U.S. Corporate HY), Bloomberg Barclays U.S. Aggregate Credit – Corporate Investment Grade Index (U.S. Corporate IG), J.P. Morgan Government Bond Index – EM Global (GBI-EM) (Local CCY EMD), J.P. Morgan Emerging Market Bond Index Global (EMBIG) (USD EMD), J.P. Morgan Asia Credit Index (JACI) (USD Asian Bond), Bloomberg Barclays Pan European High Yield (Europe HY), J.P. Morgan Government Bond Index – Global Traded (DM Government Bond), J.P. Morgan Asia Credit Index – Non-investment Grade Corporate (Asia Corporate HY), Bloomberg Barclays Global U.S. Treasury – Bills (3-5 years) (U.S. Treasury) and Bloomberg Barclays U.S. Treasury – Bills (1-3 months) (Cash). 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.
Guide to the Markets – Asia 3Q 2017. Data reflect most recently available as of 30/6/17. Yield is not guaranteed. Positive yield does not imply positive return.
Mult-Asset Income
A multi-asset strategy aims to source income from a variety of different asset classes – it’s the classic “don’t put all your eggs in one basket” approach. Multi-asset income strategies can vary – some have static allocations to particular asset classes whereas some are flexible (able to dial exposures up and down within asset classes and across geographies). A fund investor who intends to opt for the latter can consider leaving it to a professional fund manager to carefully weigh up risks and returns across different markets and tilt portfolio weights accordingly.
Source: Alerian, Bank of America, Bloomberg Finance L.P., Clarkson, Drewry
Maritime Consultants, FactSet, Federal Reserve, FTSE, MSCI, NCREIF, Standard & Poor’s, J.P. Morgan Asset Management. Maritime = Unlevered yields for maritime assets are calculated as the difference between charter rates (rental income) and operating expenses as a percentage of current asset value. Yields for each of the sub-vessel types above are calculated and the respective weightings are applied to arrive at the current sub-sector specific yields, which are then weighted to arrive at the current indicative yield for the World Maritime Fleet. Asset classes are based on NCREIF ODCE (Private Real Estate), FTSE NAREIT Global/USA REITs (Global/U.S. REITs), MSCI Global Infrastructure Asset Index (Infrastructure Assets), Bloomberg Barclays U.S Convertibles Composite (Convertibles), J.P. Morgan Government Bond Index EM Global (GBI-EM) (Local EMD), J.P. Morgan Emerging Market Bond Index Global (EMBIG) (USD EMD), J.P. Morgan Asia Credit Index Non-investment Grade Corporate (Asia HY bonds), MSCI Emerging Markets (EM Equity), MSCI The World Index (DM Equity), MSCI Emerging Markets High Dividend Yield Index (EM High Div. Equity), MSCI The World High Dividend Yield Index (DM High Div. Equity), MSCI Europe (Eur. Equity), MSCI USA (U.S. Equity). Maritime yield is as of (31/12/16), Infrastructure (31/3/17), EM High Div. Equity and DM High Div. Equity (31/5/17).
Guide to the Markets – Asia 3Q 2017. Data reflect most recently available as of 30/6/17.
Yield is not guaranteed. Positive yield does not imply positive return.
Equity Income
An equity income strategy combines the potential for capital growth (from the share price of the companies invested in) with the income from dividend payouts. Income can be taken regularly (to pay household bills or top up a pension allowance) or reinvested. The compounding effect of reinvested dividends can be a key driver of total returns in the longer term. Regular dividend payments (while not guaranteed) are likely to help cushion returns through periods of market volatility.
In general, reinvestment of income distributions can help to boost total returns over time through the power of compounding. Equity income strategies usually target companies that pay relatively high and sustainable dividends.
Source: FactSet, MSCI, J.P. Morgan Asset Management.
*Reinvestment in cash based on the same month U.S. 3-month Treasury bill (secondary market) yield.
Guide to the Markets – Asia 3Q 2017.
Data reflect most recently available as of 30/6/17. Past performance is not indicative of future performance.
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