Portfolio Pulse: Future Transition Multi-Asset Fund
Eyes on the future with an innovative asset allocation strategy
More than just seeking for resilience
Given their higher credit rating, better liquidity and relatively low default risk, quality fixed income has moved into sharper focus of late as investors position against potential macro risks on the horizon, including the prospect of a well-telegraphed downturn.
Yet this is not the only reason why quality bonds are back in vogue. In fact, there are other reasons to polish up bond portfolios with higher quality fixed income.
Reason 1: Real yields look compelling
For one, after years of having to make the most of a relatively low-yielding environment, “income” is finally back in fixed income, including government bonds which are typically considered as higher quality bonds.
Real government bond yields* have turned positive and surged to the highest levels in over a decade as aggressive central bank tightening forced a major repricing in the bond markets1. As a result, investors are now able to tap opportunities for higher real yields with less of a concern for sacrificing quality in their fixed income portfolios.
Real global government bond yields* have surged to the highest levels in over a decade
Reason 2: Attractive risk-return profile as we approach peak rates
In addition, as we head closer to the end of the rate hike cycle, duration by way of US Treasuries can present opportunities for relatively attractive returns.
As an illustration of this macro trend, over the last seven rate hike cycles since 1981, US Treasuries have historically delivered relatively robust average cumulative returns in the succeeding 24 months after the Federal Reserve’s (Fed) final rate hike2. This applies across different maturities, although longer duration bonds have historically performed better.
As US Treasuries are typically regarded as risk-free assets, this highlights the return potential of high quality bonds should the US central bank pivot away from further policy tightening.
Average cumulative return of US Treasury indices in the months after the Fed’s final rate hike
Reason 3: Inflationary pressure is receding
While inflation has proven stickier than anticipated, it is important to note that inflationary pressure is abating, albeit gradually. Importantly, wage inflation is showing signs of easing as growth in average hourly earnings continues to moderate3.
Even if sticky inflation led to further rate hikes from the Fed, we believe deeper concerns about recession risks could limit the downside for longer duration government bonds. Interestingly, the yield on the 10-year US Treasury benchmark has stayed somewhat range-bound despite the Fed delivering four rate hikes since December 20224.
The case for quality
Decelerating growth, a relatively robust risk-return profile due to higher rates and fading inflation present a more favourable backdrop for quality bonds. Global government bonds can also provide ballast to investment portfolios during periods of heightened risk aversion, as flight-to-safety could lead to higher bond prices and potentially offset declines in other risk assets. Taken together, high quality fixed income can help mitigate downside risks.
An actively managed, quality-biased investment strategy with dynamic risk management5 can help shift exposure towards areas with stronger fundamental outlook while managing duration and currency risks.
Eyes on the future with an innovative asset allocation strategy
Capturing dividend opportunities across Asia
With yields hovering close to decade highs across many fixed income sectors, investors are presented with a “menu of options”. Still, selectivity matters as recession risks loom.
A pulse check on our Asian bond portfolio
After a difficult year for bonds, we explain why fixed income could once again prove to be a useful diversifier for portfolios.
As the Fed’s rate hike cycle concludes, bonds can present an important source of income and diversification for portfolios.
We share our views on Asian bonds and how we position in 2H 2023.
We share insights on the Japanese equity strategy while riding on cyclical and structural tailwinds.
ASEAN, China and the broader Asia ex-Japan region present ample opportunities for long-term growth.
Here is a chart indicating IG bond opportunities as US Treasury yields stay elevated.
A quick look at how the Fund is positioned as recession risks loom and financial conditions tighten.
A quick take on our strategy in investing Asian income assets amid global economic slowdown and China’s reopening.
We highlight the impact of China’s reopening on Asia equities and the key secular trends driving long-term growth in the region.
Flexibility is at the heart of our approach to fixed income markets.
Income investing can help tap investment opportunities while managing volatility through cash flows from a diversified portfolio of income generating assets.
We share the key themes driving equities as China reopens.
We share the key themes that are driving equity investment opportunities in ASEAN.
Rising government bond yields have presented more room to manage the impact of rate hikes. How big is this leeway?
We share our views on the fixed income opportunities in the current tough times.
Income investing remains relevant in the current market environment, as volatility is poised to remain elevated.
We believe that quality and yield opportunities can still be found in bonds.
We share a 2H 2022 market outlook on the key themes in China equity investing.
We discuss five megatrends related to climate change and the investment implications.
How technology is advancing the process of diagnosis – listening, observing, enquiring and examining – while presenting market opportunities.
Learn about how sustainable infrastructure helps drive the development of metaverse and electric vehicles.
We share a perspective on sustainable and traditional infrastructure.
Digital education helps enhance the learning experience, driving new growth opportunities.
We discuss how urbanisation is driving opportunities in the infrastructure space.
Harnessing innovative digital and communications technologies for new economic growth opportunities.
We share our perspectives on positioning for income as rates rise.
Increasing demand for healthcare services globally is presenting growth opportunities.
Going beyond the traditional fixed income sectors to tap into the potential of securitisation.
Fixed income isn’t just government or corporate bonds, it also includes non-traditional debt securities.
The securitisation market has regained much ground in the past decade.
Diversification sounds easy, but how to do it effectively?
The development of autonomous cars creates new investment opportunities.
Feel free to call our InvestorLine or email us if you would like further information about our Funds or J.P. Morgan DIRECT Investment Platform services: