Climate change: a sustainable investing megatrend
We discuss five megatrends related to climate change and the investment implications.
#HighYieldCredit #MultiAsset #IncomeInvesting
Key takeaways:
The pursuit of income is a continuous journey. Over the past decade, income investors like us have stayed the course, employing an active investing approach as we navigate the markets’ ups and downs.
With interest rates at low levels, or negative, active management, which integrates macro views and the bottom-up, yield-focused insights of asset class specialists, is crucial in tapping into income opportunities as market conditions evolve.
Exploring high-yield potential in the overall portfolio1
The global economic recovery continues but the bright spots are currently the US and Europe. Asia could be next if vaccination rates increase, facilitating the reopening of economies and borders. The Federal Reserve is on track to begin winding down its asset purchase programme by the end of 2021, while other central banks could also consider rolling back emergency measures.
Still, rates have stayed low alongside rising inflation2.
Government bond yields and expected inflation2
2. 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. Source: J.P. Morgan Asset Management; (Left) FactSet, Tullett Prebon; (Right) Bloomberg Finance L.P. *Data begins, and averages calculated from, 01.01.1970 for US Treasuries, 02.10.1972 for German Bunds and 03.02.1986 for Japanese Government Bonds. Past performance is not a reliable indicator of current and future results. Positive yield does not imply positive return. Data reflect most recently available as of 30.09.2021.
Global fixed income: yields and duration3
3. Provided to illustrate macro trends, not to be construed as research or investment advice. Investments involve risks and are not similar or comparable to deposits. Not all investments are suitable for all investors. 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 Securitized – 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. Rising interest rates mean falling bond prices, while declining interest rates mean rising bond prices. 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.
Why we are considering high yield credit?
1. US default rate has declined
2. Attractive yield potential
US HY bonds4
4. 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. Source: J.P. Morgan Economics Research, J.P. Morgan Asset Management. *Default rate is defined as the percentage of the total market trading at or below 50% of par value and includes any Chapter 11 filing, pre-packaged filing or missed interest payments. Spreads indicated are benchmark yield-to-worst less comparable maturity Treasury yields. **Data reflects 20-year average and is as of 31.12.2020. US corporate high yield is represented by the J.P. Morgan Domestic High Yield Index. Data reflect most recently available as of 30.09.2021.
Conclusion
As rates continue to stay low, interest in HY bonds continues to gain traction. We look out for opportunities in HY bonds from an asset allocation perspective.
Provided for information only based on market conditions as of date of publication, not to be construed as investment recommendation or advice.
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. Diversification does not guarantee investment return and does not eliminate the risk of loss.
1. 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.
5. Spreads refer to the interest rate differential between two different types of bonds.
Investment involves risk. Not all investments are suitable for all investors. Past performance is not a reliable indicator of current and future results. Please refer to the offering document(s) for details, including the risk factors. Investors should consult professional advice before investing. Investments are not similar to or comparable with fixed deposits. The opinions and views expressed here are as of the date of this publication, which are subject to change and are not to be taken as or construed as investment advice. Estimates, assumptions and projections are provided for information only and may or may not come to pass. This document has not been reviewed by the SFC. Issued by JPMorgan Funds (Asia) Limited.