A multi-income journey into the emerging high-yield potential
Income investors like us have stayed the course as we ride through the four seasons. Where do we see income opportunities?
With economic activities disrupted around the world, major central banks have continued to pursue monetary easing policies to sustain growth, with some developed markets keeping policy rates near zero. Currently, almost US$13 trillion2 worth of global bonds are negative-yielding.
1. Lower correlation drives income diversification
In a low rate environment, the yield potential of Asian bonds remains relatively attractive. The yields of some Asian government bonds, for example, are higher than their developed-market peers.
Government bond yields across Asia and major developed markets3
Meanwhile, various Asian bonds exhibit lower, or negative correlation to US Treasury with relatively attractive historic returns. Five-year annualised returns4 of various Asian bonds were over 4.5%, higher than the inflation rate5 in Hong Kong over the same period. This could help investors seek relatively attractive income opportunities in a low rate environment.
Separately, Asian US-dollar (USD), investment-grade (IG) corporate bonds are less correlated to equities. In fast-changing markets, taking a diversified approach across Asian bond sectors could offer diversification benefits to the overall portfolio.
Asian fixed income: correlation versus other asset classes and performance4
2. Spanning a diverse range
The Asian bond market comprises a broad spectrum of fixed income sectors, including developed and emerging market issuers, as well as government and corporate issues. Asian bonds are also available in different currencies and credit ratings.
Asia’s bond markets have grown significantly over the past decade, where growth of both USD and local currency bonds have increased multifold. Take the local currency bond market as an example, assets in this market increased 250% over the past 10 years to about US$16 trillion1.
Previously, the Asian local currency bond market was more concentrated on sovereign bonds but the portion of corporate bonds has grown in recent years. The share of corporate bonds in the Asian local currency bond market has increased to almost 40% in March 2020 from less than 30% a decade ago6, offering a broader range of options for investors.
3. Why invest in the JPMorgan Asian Total Return Bond Fund?
A flexible Asian bond strategy
A robust Asian bond strategy would require the flexibility to optimise investment ideas across a wide range of opportunities available in the region.
Without benchmark constraints, the Fund invests flexibly in fixed income sectors such as USD Asian credit, local currency bonds and convertibles. In addition to investing in Chinese bonds, the Fund also focuses on Indian and Indonesian bonds which offer relatively attractive yields, striving for competitive total returns.
As market uncertainties persist globally, our portfolio managers focus on identifying bond issuers with relatively healthy balance sheets and fundamentals, seeking to enhance the overall credit quality of the portfolio while striving for attractive income opportunities.
Other characteristics of the Fund:
Attractive income opportunities
The Fund offers monthly distributing share classes*, providing attractive income opportunities. In addition, the Fund is available in USD and HKD Classes, alongside AUD Hedged, CAD Hedged, NZD Hedged, RMB Hedged and GBP Hedged Classes, to help meet investors’ need for different currencies. (*Aim at monthly distribution. Dividend rate is not guaranteed. Distributions may be paid from capital Refer to important information 3.)
Actively managed portfolio
The exposure to multiple sectors within Asia helps the Fund optimise the unique characteristics of the Asian fixed income spectrum for potential returns. The investment team actively manages currency exposures and durations, taking a strategic approach to manage risk while seeking opportunities.