Capturing fixed income opportunities in a changing rate environment

Important Information

1. The Fund invests primarily (at least 80%) in global investment grade debt securities. The Fund will have limited RMB denominated underlying investments.
2. The Fund is exposed to risks related to debt securities (including credit risk, interest rate risk, below investment grade/ unrated investment risk, investment grade bond risk, sovereign debt risk and valuation risk), emerging markets, currency, derivatives, liquidity, hedging, class currency and currency hedged classes. Pertaining to investments in below investment grade or unrated debt securities, these securities may be subject to higher liquidity risks and credit risks comparing with investment grade bonds, with an increased risk of loss of investment. For RMB hedged class, risks associated with the RMB currency and currency hedged classes risks. 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.

Opportunities abound for fixed income, but stay mindful of changing rate expectations…

Slowing growth and enduring disinflation trends have prompted central banks to consider recalibrating their current restrictive stance in interest rates to extend the economic cycle. This presents a broadly constructive backdrop for fixed income in 2024. With yields across a wide range of fixed income sectors hovering near decade highs, it could be opportune to lock in elevated yields.

While broader trends point to lower inflation, loosening financial conditions and emerging supply side constraints on account of rising geopolitical risks could lead to unexpected upticks in inflation. This would invariably delay the timing of any policy normalisation and trigger periodic repricing in rate markets.

Case-in-point, higher-than-expected inflation prints this year has resulted in meaningful changes to rate expectations. As illustrated below, while the market is still expecting the Federal Reserve (Fed) to cut interest rates this year, the magnitude of these cuts has been trimmed considerably. The upshot is lingering uncertainty over the outlook of inflation and monetary policy will continue to drive volatility in rates market. 

Active markets call for active strategies

Given this backdrop, fixed income strategies with relatively static positioning may not be an optimal way to engage bond opportunities, even if the market environment remains broadly constructive. A dynamic and flexible approach to managing fixed income portfolios can be useful to take advantage of factors that move markets and bond prices, including central bank actions and economic cycles.

For example, an active bond strategy can adjust interest rate exposure in response to various market conditions and tap into opportunities that may emerge in different markets at different stages of the interest rate cycle. Dynamically adjusting rate sensitivity of the overall bond portfolio and sector allocation can help maintain a stable bond beta while shifting portfolio exposure away from expensive securities to cheaper ones with more attractive return profiles.

Furthermore, with the US likely in the late stage of the current economic cycle, maintaining a quality bias is important. An actively managed fixed income strategy can shift allocation towards higher-quality issuers and away from those that could be at risk of rating downgrades. This can help manage default risks and buoy returns in times of economic or market stress. 

Harnessing the benefits of an actively managed, high-quality bond portfolio

Staying active and flexible are instrumental in managing credit and duration¹ risks that could emerge on the back of a highly fluid macro-outlook. Evolving monetary policy and slowing growth underscore the importance of a quality-focused approach when investing in fixed income, as these assets typically exhibit higher credit rating, better liquidity and relatively lower default risk.

The JPMorgan Global Bond Fund employs a quality-biased investment strategy to construct a high-quality portfolio that primarily seeks exposure to (at least 80%²) investment-grade (IG) bonds across the globe. The strategy actively shifts its allocation towards areas with stronger fundamental outlook, while actively managing duration¹ and currency risks through a disciplined yet dynamic risk management approach³.

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At J.P. Morgan Asset Management, we strive to construct stronger bond portfolios with robust risk management³. We manage over US$3.0 trillion in assets, with around US$773 billion in fixed income⁴. Our fixed income solutions span the risk spectrum and are underpinned by the deep resources and rigorous research of a truly global platform. Our actively managed funds can also tap into the full resources of our global network, allowing investors to access outcome-oriented fixed income solutions through long-established investment strategies.