JPM_logo_Eng
  • Funds

    Fund Listing

    • Fund Explorer
    • Fund Managers
    • Fund Documents

    Featured Funds

    • Multi Income Fund
    • Asian Total Return Bond Fund
    • China Bond Opportunities Fund
    • Income Fund
  • Insights

    Market Insights

    • Market Insights Overview
    • Guide to the Markets
    • Weekly Market Recap
    • On the Minds of Investors
    • Multimedia

    Retirement Insights

    • Retirement Insights Overview
    • Principles for a Successful Retirement
    • Building Better Retirement Portfolios
    • Are you letting volatility derail your retirement plan?
  • Investment Ideas
    • Managing Volatility
    • Growth Strategy
    • Income Strategy
    • Retirement and long-term investing
  • Personal Investing

    Knowing the Basics

    • Retirement Planning
    • Investing for Your Children’s Future
    • Ways to Diversify Your Portfolio
    • Mutual Funds 101

    Getting Started

    • Start Investing
    • Investment Ideas
    • Regular Savings Plan
    • eTrading Privileges
    • Open an Account Online with Ease
  • Retirement Services
    • ORSO Services
    • MPF Services
    • Retirement Fund Centre
  • Resources
    • About Us
    • Awards
    • Contact Us
    • Announcements
    • Forms & Literature
    • Investment Return Calculator
  • Library
Skip to main content
  • Language
    • English
    • 中文/ Chinese
  • Role
  • Country
  • eTrading Login
Search
Menu
CLOSE
Search
  1. Home
  2. Insights
  3. Investment Ideas
  4. Income Strategy Q&A: focusing on long-term value proposition

  • Print
  • Actions

  • Print
Important information
JPMorgan Funds – Income Fund
  1. The Fund invests primarily in a portfolio of debt securities.
  2. The Fund is therefore exposed to emerging markets, investment grade bonds, credit, sovereign, interest rate risks which may affect the price of bonds, concentration, convertibles, equity, currency, liquidity, derivative and distribution (no assurance on distribution or the frequency of distribution or distribution rate or dividend yield) risks. 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. Investments in asset backed securities and mortgage backed securities may be subject to greater credit, liquidity and interest rate risks compared to other debt securities such as government issued bonds and are often exposed to extension and prepayment risks.
  3. The Fund may at its discretion pay dividends out of capital. The Fund may also at its discretion pay dividends out of gross income while charging all or part of the Fund’s fees and expenses to the capital of the Fund, resulting in an increase in distributable amount for the payment of dividends and therefore, effectively paying dividends out of realised, unrealised capital gains or capital. Investors should note that, share classes of the Fund which pay dividends may distribute not only investment income, but also realised and unrealised capital gains or capital. Payment of dividends out of capital amounts to a return or withdrawal of part of an investor’s original investment or from any capital gains attributable to that original investment. Any dividend payments, irrespective of whether such payment is made up or effectively made up out of income, realised and unrealised capital gains or capital, may result in an immediate reduction of the net asset value per share.
  4. Investors may be subject to substantial losses.
  5. Investors should not solely rely on this document to make any investment decision.

Income Strategy Q&A: focusing on long-term value proposition

May 2020 (3-minute read)

J.P. Morgan Asset Management

Key takeaways:

  • The global spread of the acute respiratory disease and subsequent social distancing measures have caused enormous economic and public health uncertainties. Investors are keenly monitoring the infection curve to gauge whether the outbreak is under control. Andrew Headley, a portfolio manager of our Income Strategy, shares his views and outlines how the Strategy is positioned, prompting investors to look through the headlines and focus on the long term1.

Q1. WE HAVE SEEN A RECOVERY IN RISK ASSETS OVER THE PAST FEW WEEKS. IS THE WORST BEHIND US?


When it comes to the risks, while we can be hopeful that strong containment actions across the developed world will limit the further spread of the acute respiratory disease, the true economic impact won’t be known for a few months at the earliest. It’s hard to say that the worst is behind us. 

Financial markets tend to be very forward looking. The bottom in the financial markets may not align precisely to economic output or risks to the economy.

The question that we face is whether enough bad news has been priced in. As investors rushed to liquidate positions and de-risk in mid to late March, we saw market dislocation and extreme volatility across all sectors of the global fixed income market. Since then, with the dramatic assistance of the US Federal Reserve (Fed) and accommodative central banks around the world, market conditions have improved dramatically.

 

Q2. ARE WE STILL FACING CHALLENGES IN LIQUIDITY?


Although bond markets globally experienced significant liquidity challenges in mid-March, this began to ease as the Fed meaningfully stepped up their quantitative easing (QE) programme and introduced a number of highly supportive facilities to aid market functioning and to promote and bolster liquidity.

 

Q3. HOW ARE YOU POSITIONING THE INCOME STRATEGY?


Active management in this period is critical, including the ability to actively adjust the portfolio in response to rapidly changing market conditions.

At the end of 2019, we had more optimism on the back of positive development of a China-US trade deal, highly supportive central banks and strong fiscal backdrop for consumers. All these pointed to a healthy foundation for consumer-related segments of the US economy. So we carried reasonable consumer risk into the start of 2020. Despite a cautiously optimistic fundamental outlook, we didn’t think that spread levels were fully compensating us for risk-taking.  As such, we got more defensive in the strategy towards the end of 2019.

In early 2020, we planned around the “known unknown” risks – such as the outcome of the US presidential election, and its risk of reshaping the US economy. At the same time, we also are able to pivot and respond when “unknown unknown” risks arise, such as the escalation of conflict between the US and Iran, and the pandemic.

 

We made a number of changes from January 2020 onwards as the disease spreads across continents2.

  • We added more than two years of duration in government bonds in the month of January as a hedge to some of our strategy’s credit exposures. As interest rates fluctuated dramatically in March, we increased duration again before selling back down in April.
  • We reduced our high yield (HY)3 exposure via hedging instruments.
  • We added to our US securitised exposure to take advantage of opportunities created by pricing dislocations.

As we look ahead, it’s important for investors to maintain a keen focus on fundamentals. Although we continue to have selective exposure to HY in the Strategy, we remain cautious on the sector.

While the headline yields in HY are elevated, at approximately 8%4,5, much of that is currently driven by companies that are nominally high-yielding but are being effectively priced for default. By comparison, the more credit worthy issuers are yielding close to 5-6%4,5. As such, we’ve layered some hedges back into our HY exposure, reflecting our caution.

Although the US HY market is deriving a degree of further support from the Fed, its actions to purchase these securities are largely symbolic. As such, we’d expect an average 10% default rate in HY for some time.

Given substantial credit risk in HY, it’s more important than ever for investors to cautiously pick through securities for investment opportunities, particularly in areas such as energy. Therefore, within HY, we’re focused on non-cyclical sectors that are expected to hold up well in this stressed environment – such as media, telecoms, healthcare, consumer goods etc.

Learn more

Q4.  WHAT IS YOUR INCOME STRATEGY'S CURRENT EXPOSURE TO US SECURITISED ASSETS6?


Exposure to a broad mixture of US securitised assets provides important diversification7 to the Strategy. As of end of March, our securitised exposure makes up approximately 40% of the Strategy2.

  • Half of these holdings are in agency mortgage backed securities (MBS), collateralised mortgage obligations (CMOs), interest-only securities (IOS) etc. These are directly or indirectly supported by the Fed and form a core pillar of our exposure.

  • The other 20% is split across non-agency residential MBS, commercial MBS (CMBS) and asset- backed securities (ABS).

In the current environment, correlations are higher than we’d expect over a full investment cycle, but they continue to offer some diversification7 benefits given their unique characteristics. We continue to see opportunities in all of those securities.

 

Q5. HOW ARE YOU HEDGING RISK IN YOUR US SECURITISED EXPOSURE2,6?


We’re broadly diversified7 within the securitised space. We hold everything from auto to home loans, to commercial real estate, to direct consumer loans. We strive not to have a single sub-sector dictate the overall performance of our Strategy. This is particularly important given heightened uncertainty across markets. We manage and hedge the portfolio’s interest rate exposure through Treasury futures. Within each sector, we use instruments that represent a basket of bonds and hedge the exposure via credit default swap indices.

 

Q6. WHAT SHOULD INVESTORS KEEP IN MIND?


We believe that the combination of appropriate healthcare policy, scientific advancements and a robust fiscal and monetary policy response will help to combat and contain the pandemic over time. As such, we believe there are great opportunities for both returns and long-term income.

The Income Strategy was built around targeting high levels of income at a prudent level of risk and around relying on genuine diversification7 by utilising our resources to identify strong risk-reward ideas. Although markets will remain volatile in the short-term, this provides long-term investors with security selection expertise the opportunity to capitalise on bond market mispricings. As markets normalise, we remain focused on delivering on our long-term value proposition8.
 

Explore our investment solutions


Click here for more fund information 

Click here to explore more Investment Ideas

Subscribe to our e-Newsletter

This represents investment team’s views as of 22 April 2020 based on current market conditions, subject to change from time to time. Provided for information only, not to be construed as investment or research recommendation.

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.
2. Provided for information only, not to be construed as investment or research recommendation. Holdings and exposures in actively managed portfolios are subject to change from time to time.
3. High-yield credit refers to corporate bonds which are given ratings below investment grade and are deemed to have a higher risk of default. For illustrative purposes only, exact allocation of portfolio depends on each individual’s circumstances and market conditions. Yield is not guaranteed. Positive yield does not imply positive return.
4. Yield is not guaranteed. Positive yield does not imply positive return.
5. Source: JPMorgan Chase & Co., ICE.  Data as at 31.03.2020. Opinions, estimates, forecasts, and statements of financial market trends that are based on current market conditions constitute our judgment and are subject to change without notice. There can be no guarantee they will be met.
6. Securitisation is the process in which certain type of assets, such as mortgages or other types of loans, are pooled so that they can be repackaged into interest-bearing securities. Examples of securitised debt include mortgage-backed securities (MBS) which are debt securities backed by mortgage-related financial assets. These assets include residential and commercial mortgage loans.
7. Diversification does not guarantee investment return and does not eliminate the risk of loss.
8. The manager seeks to achieve its stated investment objectives, there is no guarantee these will be met.

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.

OUR FOCUS FUNDS

Fixed Income

  • JPMorgan Asian Total Return Bond Fund
  • JPMorgan Funds – Income Fund
  • JPMorgan Global Bond Fund
  • JPMorgan Investment Funds - Global High Yield Bond Fund

Equity

  • JPMorgan Asia Growth Fund
  • JPMorgan Asia Equity Dividend Fund
  • JPMorgan China A-Share Opportunities Fund
  • JPMorgan China Pioneer A-Share Fund
  • JPMorgan Europe Strategic Dividend Fund
  • JPMorgan Pacific Technology Fund
  • JPMorgan Funds - US Technology Fund

Asset Allocation

  • JPMorgan China Income Fund
  • JPMorgan Funds - Asia Pacific Income Fund
  • JPMorgan Multi Balanced Fund
  • JPMorgan Multi Income Fund
See all funds

RELATED ARTICLES

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?

Read More

What’s trending in China’s equity markets?

As the year begins, consider a 2021 list of China A-share ideas as you devise a plan for your investment portfolio?

Read More

Curious about income investing? We share 4 FAQs

How much do you know about income investing amid an evolving market environment?

Read More

Outlook 2021: portfolio positioning with ‘G.P.S.’

Uneven recoveries in 2021 would imply the need for more active management.

Read More

Year ahead 2021: seeking clarity amid macro uncertainty

As market volatility could persist in 2021, how can investors cut through the fog of uncertainty?

Read More

Outlook 2021: investment themes in a ‘new normal’

How a ‘new normal’ could shape investing in equities, fixed income and multi-asset solutions.

Read More

Keeping a longer investment horizon as events unfold in China and the US

What are the investment implications of China’s new economic blueprint and the US elections?

Read More

Finding growth: there’s still more to know about Asia

We share our views on how the public health crisis has accelerated some structural growth trends in Asia.

Read More

Finding growth: how a consumer’s routine can spark investing ideas

We share our perspectives on potential opportunities arising from evolving consumer behaviours.

Read More

Finding growth: it’s a digital revolution

We share our perspectives on riding the wave for future growth in tech investing.

Read More

What’s ahead for investing as Election Day approaches

With less than a month to go before the US elections, we look at the investment implications for 5 major economic sectors.

Read More

Building a stronger income portfolio as rates stay low

A persistent and flexible strategy has become more important ever in seeking income.

Read More

Recovering economy, reinforcing Chinese equity opportunities

Looking at China’s economic recovery and the beneficiaries in the long term.

Read More

Risks and potential opportunities for bonds in 4Q 2020

The potential opportunities and risks in bonds in the last stretch of 2020.

Read More

Securitisation 101: making optimal use of securitised debt

Let's explore the role securitised debt could play in an investment portfolio.

Read More

Why some investors are still investing in equities

Understand stock valuations for clues to potential opportunities in a market rally.

Read More

Recovering economy, recovering Chinese property bond demand

As China’s property market recovers, capture income potential of Chinese property bonds with a diversified Asian bond strategy.

Read More

What do the As and Bs in bond credit ratings mean for investors

Understand bond credit rating and broaden potential income opportunities.

Read More

Is the Fed’s new framework a boon for Asia?

With the Fed’s new policy framework, where do we see opportunities in Asia?

Read More

Activating Asia’s bond potential with a dynamic approach

Actively manage local currency opportunities in an Asian bond portfolio.

Read More

What a weak US dollar could mean for a portfolio

Seeking investment opportunities as the US dollar weakens.

Read More

Asia’s bond markets = one region + multiple income options

Asia’s bond markets have grown significantly over the past decade, spanning a diverse range that offers investors more fixed income options.

Read More

Seeking quality growth potential in China A-Shares

Our portfolio manager shares her views on potential quality growth and A-Shares as China enters a new normal.

Read More

It’s three-in-a-row: Asian bonds in a portfolio

Income opportunties can still be found in Asia’s bond markets amid low rates as they are supported by these three factors.

Read More

Asian bonds: there’s still more to know

The Asian bond market has grown significantly in the past decade. Explore the abundant opportunities.

Read More

Chinese bonds: what, why and how

In the zero interest rate era, what are the income opportunities in Chinese bonds?

Read More

Growth in focus: finding the ace among A-Shares

Amid China’s long-term structural growth trends, which are the sectors that could stand out in the A-Share market?

Read More

3, 2, 1 – getting ready to invest in Chinese bonds

Expand your sources of income by considering the potential opportunities in Chinese bonds.

Read More

Unlocking long-term growth potential in Asia

Structural growth trends in Asia remain intact amid the pandemic and some have actually been accelerated.

Read More

Navigating Chinese bonds with versatility

As the search for income gets tougher, consider the world of Chinese bonds to diversify your income opportunity set.

Read More

Riding through the highs and lows with global dividend opportunities

Striving to optimise potential equity income opportunities as markets recover.

Read More

Scenarios of an expected global economic recovery

We describe three case scenarios for economic recovery after the pandemic subsides.

Read More

Making the most of bond opportunities as the pandemic subsides

Positioning to tap bond market opportunities as economies reboot as the pandemic subsides.

Read More

Positioning for yield in time for a global restart

As liquidity conditions improved, our portfolio manager shares how we are positioned for income opportunities across asset classes.

Read More

Emerging trends set in motion for US technology

US technology sector looks set to benefit from emerging trends driven by the pandemic.

Read More

China Q&A: finding quality A-shares in volatile markets

China’s long-term structural trends such as consumption upgrades, domestic technology and healthcare innovation are expected to remain intact amid the pandemic.

Read More

Multi-asset income strategies in unique times

As the search for quality income gets challenging, a diversified multi-asset income solution could be considered to broaden income potential.

Read More

2Q 2020 bonds: weathering a market storm

Diversifying across fixed income, with a quality tilt, could help build portfolio resilience.

Read More

Taking steps to stay on top of volatility

A diversified portfolio with a defensive bias could help build portfolio resilience while seeking yield opportunities.

Read More

Focus Q&A: how tech stocks in APAC are faring

The limited impact of COVID-19 on APAC’s technology industry chain in the medium to long term.

Read More

Adding a fitting pace to your income portfolio

Diversify your income sources to help navigate uncertain markets.

Read More

Fixed income investing in uncertain times

Investing across multiple fixed income sectors could help navigate uncertain markets and seek yield in fixed income.

Read More

Repositioning for income potential in uncertain times

Our multi-asset fund manager shares how he repositions for income in uncertain times.

Read More

Some investing dos and don’ts when markets are volatile

Some investing ‘dos & don’ts’ as you navigate market volatility in uncertain times.

Read More

Investing during the COVID-19 outbreak: 4 topmost concerns

As COVID-19 continues to evolve, our strategists share 4 topmost concerns among Asia’s investors.

Read More

China’s fundamentals signal resilience despite health crisis

China’s economic fundamentals remain resilient as the country races to contain an evolving health crisis.

Read More

The little red envelope savings guide

As you welcome the Year of the Rat, plan to make your “lucky money” work harder for you.

Read More

Aiming high when yield stays low

Yield can still be found in a low rate environment but requires moving along the risk spectrum.

Read More

1Q 2020 bonds: where we see opportunities

Time to reposition fixed income as the economy bottoms out and recession risk wanes.

Read More

Investing in a world of ultra-low rates

Lower returns from bonds could pose a challenge to long-term investors.

Read More

Securitisation 101: What are ABS and MBS?

Fixed income isn’t just government or corporate bonds, it also includes non-traditional debt securities.

Read More

Securitisation: Then and now

The securitisation market has regained much ground in the past decade.

Read More

The secret to effective diversification

Diversification sounds easy, but how to do it effectively?

Read More
Market Views Volatility Fixed Income
lets-solve-it-logo

Feel free to call our InvestorLine or email us if you would like further information about our Funds or eTrading services:

(852) 2265 1188

investor.services@jpmorgan.com

J.P. Morgan Asset Management

  • Terms of Use
  • Privacy Statement
  • Cookies Policy
  • Investment Stewardship
  • Fund Notes
  • Offering Document(s)
  • Forms & Literature
  • Guide to Using This Website
  • Sitemap
J.P. Morgan

  • J.P. Morgan
  • JPMorgan Chase
  • Chase

The information contained herein is intended only for use by Hong Kong residents. By using this information, you are representing and warranting that you are either residing in Hong Kong or the applicable laws and regulations of your jurisdiction allow you to access the information, and you confirm that you accept the Terms of Use as set out in https://am.jpmorgan.com/hk/. Investment involves risk. Past performance is not indicative of future performance. In particular, funds which are invested in emerging markets and smaller companies may involve a higher degree of risk and are usually more sensitive to price movements. Investors should carefully read and consider the fund offering document(s), which contain details on investment objectives, risk factors, charges and expenses of the fund, before making any investment decisions. Investors should read carefully the fund notes before making any investment decisions. Information in this website does not constitute investment advice, or an offer to sell, or a solicitation of an offer to buy any security, investment product or service, nor a distribution of information for any such purpose. Opinions and statements of financial market trends set out are for information purposes only, based on certain assumptions and current market conditions and are subject to change without prior notice. All information presented herein is considered to be accurate at the time of production, but no warranty of accuracy is given and no liability in respect of any error or omission is accepted. Investors should conduct their own verification. The views and strategies described may not be suitable for all investors. This website and the advertisements contained herein are issued by JPMorgan Funds (Asia) Limited. This website has not been reviewed by the Securities and Futures Commission of Hong Kong ("SFC"), with the exception of material relating to the JPMorgan Provident Plan that the SFC has pre-approved (however such pre-approval does not imply official recommendation by the SFC).

Copyright 2021 JPMorgan Funds (Asia) Limited. All rights reserved.