The US stock market has been awry since 9 March week¹ as oil prices plunged after Saudi Arabia threatened to increase production in April. In a policy response to mitigate the economic impact of this new disease, the US Federal Reserve², Reserve Bank of Australia³ and the Bank of England⁴ have cut rates.

We know it’s hard - as markets shift rapidly and this disease spreading across continents - to hold down the sense of anxiety you may be feeling over current volatility and ultra-low yields.

Don’t let volatility derail you

As markets fluctuate, you may wonder whether to divest from one asset class and move into another that could fare better in such uncertain times. Be aware of the volatility that you can handle, keeping in mind that troubled times aren’t a sign to sell everything.

Investing generally involved significant drawdowns from time to time. Markets move in cycles and through peaks and troughs. So even as popular signals start to indicate difficult times ahead, it can still pay to remain invested. 

Do consider diversification

A key to navigating market volatility is diversification. Instead of focusing on a single asset class, investing in assets that have low or negative correlation could help smooth portfolio fluctuations under different market conditions.

Winners rotate

As the chart shows, no single asset class can stand out as an all-time outperformer over the years. Equities, for example, took up the top three performing asset classes in 2019⁵ but market have been relative eventful so far this year. 

As winners rotate, it is crucial to have a diversified portfolio so that you won’t miss out on the opportunities to capture the upside potential of different asset classes.

Learn more: Principles for successful long-term investing

 

Do keep quality at the forefront  

As you consider diversification, keeping a focus on quality could better help you select securities in an asset class.

For example, fixed income generally has relatively lower risk compared with equities and it is an essential component for portfolio allocation, based on investors’ objectives and risk appetite.

Conclusion

For investors, generating a reliable source of income throughout their investing lifetime is vital, especially in an ever-changing market environment. Seeking a diversified portfolio with a long-term horizon could help investors ride through volatile markets. And it is important to focus on quality, without overstretching for yield, when selecting securities in an asset class.

Diversification does not guarantee investment return and does not eliminate the risk of loss. Past performance is not a reliable indicator of current and future results.

1. Source: Bloomberg Finance L.P., J.P. Morgan Asset Management. Data as of 10.03.2020.
2. Source: “Federal Reserve issues FOMC statement”, 03.03.2020.
3. Source: “Statement by Philip Lowe, Governor: Monetary Policy Decision”, Reserve Bank of Australia, 03.03.2020.
4. Source: “MPC reduces Bank Rate and launches new Term Funding Scheme with additional incentives for SMEs”, Bank of England, 10.03.2020.
5. Source: Bloomberg Finance L.P., Dow Jones, FactSet, J.P. Morgan Economic Research, MSCI, J.P. Morgan Asset Management. Indices are the MSCI World Index (DM Equities), the MSCI AC Asia Pacific ex-Japan (APAC ex-JP Equities), the average of the MSCI EM Latin America and MSCI EM EMEA Indices (EM ex-Asia Equities), the J.P. Morgan EMBIG Index (EM Debt), the Bloomberg Barclays Aggregate (Global Bonds), the Bloomberg Barclays Global Corporate High Yield Index (Global Corp HY), J.P. Morgan Asia Credit Index (Asian Bonds), MSCI US REITs Index (US REITs) and Bloomberg Barclays US Treasury – Bills (1-3 months) (Cash). All data represent total return in US dollar (USD) terms for the stated period. Past performance is not a reliable indicator of current and future results. DM: Developed Markets; EM: Emerging Markets; Global Corp HY: Global Corporate High Yield Bonds; REITS: Real Estate Investment Trusts. Data reflect most recently available as of 31.12.2019.
6. 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.
7. 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.
8. Source: J.P. Morgan Asset Management, Bloomberg, data as of 28.02.2020. Indices are represented by Bloomberg Barclays US Mortgage Backed Securities Index and Bloomberg Barclays US Treasury Index (5-7 year). Yield is not guaranteed. Positive yield does not imply positive return. Past performance is not a reliable indicator of current and future results.

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.