Fixed income investors can benefit from active strategies

Many investors have viewed fixed income portfolios as good candidates for passive ETFs, which can provide core fixed income exposure, such as a diversified bond index, at minimal cost.

But passive ETFs may not always create the outcomes investors expect from their fixed income allocations, including diversification and potential return enhancement. In fact, while passive investments leave investors vulnerable to the changing investment characteristics of fixed income indices and market behavior, active ETFs have the opportunity to benefit from these events.

For example, unlike equity indices, the composition of bond indices is driven by the largest issuers, not necessarily the most “successful” issuers. This means a passive ETF will automatically drift towards the largest issuers over time irrespective of the quality of their balance sheets. An actively managed fixed income ETF can allocate towards higher-quality issuers and away from those that could be at risk for downgrades, which can help preserve capital and returns in time of economic or market stress.

Active fixed income ETFs can also capitalise on numerous factors that impact bond prices and move markets, including economic and market cycles, central bank actions and regulations for institutional investors. For instance, an active strategy can adjust interest rate exposure and sector allocation through the cycle, enabling investors to own cheaper securities and underweight expensive ones while maintaining a stable bond beta.

Active ETFs can offer extra benefits

The unique mechanics of active ETFs are transforming the delivery of active fixed income strategies, with multiple benefits for investors. To begin with, active ETFs offer daily transparency into fund portfolios vs. monthly or quarterly for mutual funds and they tend to have much lower management fees.

Active ETFs are also highly liquid: They have the same primary market mechanism as passive ETFs and they trade on the same stock exchanges in the secondary market, which allows investors to buy and sell throughout the day providing real-time price discovery. This not only improves liquidity but allows investors to monitor the values of their active portfolios more closely, a material benefit in times of market stress.

Explore the global opportunity with J.P. Morgan Asset Management’s Global Aggregate strategy

Some fixed income strategies are particularly well suited to active ETFs. The Bloomberg Global Aggregate Index is a core allocation that covers a wide opportunity set spanning government, corporate, government-related, emerging market and securitized bonds across 25 local currency markets. The size and complexity of the Global Aggregate universe makes a compelling case for active management that employs bottom-up security selection and top-down sector allocation, while taking advantage of relative value opportunities by rotating between sectors.

Our Global Aggregate strategy’s time-tested process has delivered strong returns since inception of the strategy in 2009 while retaining the key features of a core bond portfolio, including low volatility, limited drawdowns and no market bias.

1. Low volatility: With an experienced team of investors and a disciplined portfolio construction process, J.P. Morgan Asset Management’s actively managed Global Aggregate investment strategy has delivered strong returns over the 5 rolling years compared to the Global Aggregate index with similar volatility.

5 years: Risk-adjusted returns vs. key market indices

Source J.P. Morgan Asset Management. Data as on 30 September 2023. Past performance is not a reliable indicator of current and future results. JPM Aggregate Bond Strategy returns represents the composite -Aggregate Bond Hedged to USD. Strategy performance is calculated in compliance with GIPS® standards, where pooled funds, managed in accordance with the strategy, are grouped into a ‘composite’. Composite inception date: 30 November 2009. The performance results are time-weighted rates of return with the reinvestment of income, that are net of commissions, transaction costs and non-reclaimable withholding taxes, where applicable.

2. Strong returns: Our active strategy, featuring a diversified investment process whilst seeking to generate excess returns from many different sources, not just from a few big positions, as such it has delivered strong excess returns over time.

Source J.P. Morgan Asset Management. Data as on 30 September 2023. Past performance is not a reliable indicator of current and future results. JPM Aggregate Bond Strategy returns represents the composite -Aggregate Bond Hedged to USD. Strategy performance is calculated in compliance with GIPS® standards, where pooled funds, managed in accordance with the strategy, are grouped into a ‘composite’. Composite inception date: 30 November 2009. Benchmark: Bloomberg Global Aggregate (total returns) USD hedged. The performance results are time-weighted rates of return with the reinvestment of income, that are net of commissions, transaction costs and non-reclaimable withholding taxes, where applicable.

3. Limited drawdowns: The risk management process includes stress testing and makes the portfolio managers vigilant against unexpected risks. Over a period with many different and unexpected real stress tests – from the eurozone sovereign crisis to Covid – our strong focus on risk management has helped limit performance drawdowns vs. the J.P Morgan aggregate strategy benchmark.

Source J.P. Morgan Asset Management. Data as on 30 September 2023. Past performance is not a reliable indicator of current and future results. JPM Aggregate Bond Strategy returns represents the composite -Aggregate Bond Hedged to USD. Strategy performance is calculated in compliance with GIPS® standards, where pooled funds, managed in accordance with the strategy, are grouped into a ‘composite’. Composite inception date: 30 November 2009. Benchmark: Bloomberg Global Aggregate (total returns) USD hedged. The performance results are time-weighted rates of return with the reinvestment of income, that are net of commissions, transaction costs and non-reclaimable withholding taxes, where applicable.

4. No market bias: Funds delivering superior returns by overweighting higher-yielding risk assets typically underperform when the bond market rallies in a risk-off environment. Our disciplined Global Aggregate investment process avoids this market bias and has outperformed in both rising and falling markets, allowing investors to rely on the strategy as a core bond offering that can help hedge riskier assets.

Source J.P. Morgan Asset Management. Data as on 30 September 2023. Past performance is not a reliable indicator of current and future results. JPM Aggregate Bond Strategy returns represents the composite -Aggregate B ond Hedged to USD. Strategy performance is calculated in compliance with GIPS® standards, where pooled funds, managed in accordance with the strategy, are grouped into a ‘composite’. Composite inception date: 30 November 2009. Benchmark: Bloomberg Global Aggregate (total returns) USD hedged. The performance results are time-weighted rates of return with the reinvestment of income, that are net of commissions, transaction costs and non-reclaimable withholding taxes, where applicable.

GIPS composite disclaimer

Composite disclosures

(*) FOR BELGIUM ONLY: Please note the acc share class of the ETF marked with an asterisk in this page are not registered in Belgium and can only be accessible for professional clients. Please contact your J.P. Morgan Asset Management representative for further information. The offering of Shares has not been and will not be notified to the Belgian Financial Services and Markets Authority (Autoriteit voor Financiële Diensten en Markten/Autorité des Services et Marchés Financiers) nor has this document been, nor will it be, approved by the Financial Services and Markets Authority. This document may be distributed in Belgium only to such investors for their personal use and exclusively for the purposes of this offering of Shares. Accordingly, this document may not be used

FOR PROFESSIONAL CLIENTS / QUALIFIED INVESTORS ONLY – NOT FOR RETAIL USE OR DISTRIBUTION.

This is a marketing communication and as such the views contained herein do not form part of an offer, nor are they to be taken as advice or a recommendation, to buy or sell any investment or interest thereto. Reliance upon information in this material is at the sole discretion of the reader. Any research in this document has been obtained and may have been acted upon by J.P. Morgan Asset Management for its own purpose. The results of such research are being made available as additional information and do not necessarily reflect the views of J.P. Morgan Asset Management. Any forecasts, figures, opinions, statements of financial market trends or investment techniques and strategies expressed are, unless otherwise stated, J.P. Morgan Asset Management’s own at the date of this document. They may not necessarily be all-inclusive and are not guaranteed as to accuracy. They may be subject to change without reference or notification to you. The value of investments and the income from them may fluctuate in accordance with market conditions and taxation agreements and investors may not get back the full amount invested. Changes in exchange rates may have an adverse effect on the value, price or income of the products or underlying overseas investments. Past performance and yield are not a reliable indicator of current and future results. There is no guarantee that any forecast made will come to pass. Furthermore, there can be no assurance that the investment objectives of the investment products will be met. J.P. Morgan Asset Management is the brand name for the asset management business of JPMorgan Chase & Co. and its affiliates worldwide. To the extent permitted by applicable law, we may record telephone calls and monitor electronic communications to comply with our legal and regulatory obligations and internal policies. Personal data will be collected, stored and processed by J.P. Morgan Asset Management in accordance with our EMEA Privacy Policy www.jpmorgan.com/emea-privacy-policy. As the product may not be authorised or its offering may be restricted in your jurisdiction, it is the responsibility of every reader to satisfy himself as to the full observance of the laws and regulations of the relevant jurisdiction. Prior to any application investors are advised to take all necessary legal, regulatory and tax advice on the consequences of an investment in the products. Shares or other interests may not be offered to or purchased directly or indirectly by US persons.
All transactions should be based on the latest available Prospectus, the Key Information Document (KID) and any applicable local offering document. These documents together with the annual report, semi-annual report, instrument of incorporation and sustainability-related disclosures, are available in English from JPMorgan Asset Management (Europe) S.à r.l., 6 route de Trèves, L-2633 Senningerberg, Grand Duchy of Luxembourg, your financial adviser or your J.P. Morgan Asset Management regional contact or at www.jpmorganassetmanagement.ie. A summary of investor rights is available in English at https://am.jpmorgan.com/lu/investor-rights. J.P. Morgan Asset Management may decide to terminate the arrangements made for the marketing of its collective investment undertakings. Units in Undertakings for Collective Investment in Transferable Securities (“UCITS”) Exchange Traded Funds (“ETF”) purchased on the secondary market cannot usually be sold directly back to UCITS ETF. Investors must buy and sell units on a secondary market with the assistance of an intermediary (e.g. a stockbroker) and may incur fees for doing so. In addition, investors may pay more than the current net asset value when buying units and may receive less than the current net asset value when selling them. In Switzerland, JPMorgan Asset Management Switzerland LLC (JPMAMS), Dreikönigstrasse 37, 8002 Zurich, acts as Swiss representative of the funds and J.P. Morgan (Suisse) SA, Rue du Rhône 35, 1204 Geneva, as paying agent. With respect to its distribution activities in and from Switzerland, JPMAMS receives remuneration which is paid out of the management fee as defined in the respective fund documentation. Further information regarding this remuneration, including its calculation method, may be obtained upon written request from JPMAMS. This communication is issued in Europe (excluding UK) by JPMorgan Asset Management (Europe) S.à r.l., 6 route de Trèves, L-2633 Senningerberg, Grand Duchy of Luxembourg, R.C.S. Luxembourg B27900, corporate capital EUR 10.000.000. This communication is issued in the UK by JPMorgan Asset Management (UK) Limited, which is authorised and regulated by the Financial Conduct Authority. Registered in England No. 01161446. Registered address: 25 Bank Street, Canary Wharf, London E14 5JP.
09iu230409152347