A resurgence in infection rates is weighing in on the recovery prospects of some economies around the world. There is also a continuing debate on whether the inflationary environment is temporary or more complex. We believe there are income opportunities amid market uncertainties.

In addition to contributing to total return, income generation could help counter the erosion of purchasing power amid inflation, or provide regular cash flow to help meet financial needs over the long run.

How are you navigating the income investing landscape? We share some frequently asked questions about income investing.

• Currently, DM government bond yields have remained low but yields of assets such as global high-yield bonds recently reached 5.3%³, and that of Asia Pacific ex-Japan high dividend stocks stood at 4.4%³. Such sectors can present opportunities as a part of an overall income portfolio.


• Having a diversified portfolio that taps into multiple income sources across asset classes could help seek income opportunities in a low rate environment while helping to manage risk¹.

• Bonds have been a source of income over the past 40 years, and bond prices have also risen amid persistent low rates. Based on the current level, there isn’t much room for interest rates to decline further, thus, limiting the role of bonds in risk-hedging.


• In addition to the traditional government and investment-grade corporate bonds, we seek income opportunities from the extended fixed income sectors such as high-yield bonds, as well as other assets such as dividend stocks locally, regionally or globally, as part of the overall portfolio.


• Investing across a broader set of asset classes as a part of the overall portfolio could help capture income opportunities. Some asset classes have their unique characteristics and would respond differently to changing market conditions.
  
  

Sourcing yield across asset classes³

3. Source: Alerian, Bank of America, Bloomberg Finance L.P., Clarkson, Drewry Maritime Consultants, FactSet, Federal Reserve, FTSE, MSCI, Standard & Poor’s, J.P. Morgan Asset Management. Asset classes are based on J.P. Morgan Asia Credit Index Non-investment Grade (Asia high yield bonds), Bloomberg Barclays Global High Yield Index (Global high yield bonds), J.P. Morgan Emerging Market Bond Index Global (EMBIG) (USD emerging market debt), J.P. Morgan Government Bond Index EM Global (GBI-EM) (Local currency emerging market debt), Emerging Markets High Dividend Yield Index (Emerging market high dividend equity), MSCI Asia Pacific ex-Japan High Dividend Yield Index (APAC ex-JP high dividend equity), MSCI World High Dividend Yield Index (Developed market high dividend equity), FTSE NAREIT Global REITs Index (Global REITs), MSCI Europe Index (Europe equity), Bloomberg Barclays US Convertibles Composite Index (Convertibles), MSCI Asia Pacific ex-Japan Index (APAC ex-JP equity), US 10-Year Treasury (US 10-year), MSCI USA Index (US equity). Indices do not include fees or operating expenses and are not available for actual investment. Past performance is not a reliable indicator of current and future results. Data reflect most recently available as of 30.06.2021. Provided to illustrate macro trends. Not all investments are suitable for all investors. Investors should make independent evaluation and seek financial 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.

• Investors should consider having a balanced portfolio based on their investment objectives and risk appetite. As a part of the overall portfolio, some assets such as high-yield bonds could offer relatively attractive yield although their credit risk is also comparatively higher. As illustrated in the chart, the 10-year average US default rate was 2.3%⁴ and the latest was 1.6%⁴. Defaults have slowed and continuous improvement is expected as economy gradually recovers.
  
  

US high-yield spread and default rate⁴

4. 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. US corporate high yield is represented by the J.P. Morgan Domestic High Yield Index. Data reflect most recently available as of 30.06.2021.

• Diversification is key. Some non-traditional assets such as securitised assets could have a relatively lower correlation against risk assets such as high-yield bonds and equities. In a market downturn, securitised assets have demonstrated relatively more resilient performance, with a potential to help manage risk and broaden income opportunities¹ as a part of the overall portfolio.


• Instead of focusing on short-term volatility, investors should keep an eye on the long-term trends of asset classes. A diversified income portfolio tends to be better placed to be more resilient.

• We employ a flexible approach in income investing by dynamically adjusting allocations based on market conditions, valuations and default rates. For instance, within our overall portfolio, we actively manage exposure to high-yield bonds and consider high-dividend stocks with relatively attractive valuations in our search for higher-yielding opportunities as we also seek to manage risk.

Conclusion
 

With an evolving income investing landscape, keeping a sole focus on traditional income sources based on investors’ objective may no longer be optimal. A flexible strategy that strives to go beyond traditional sectors for a broader set of income sources could help capture income opportunities while helping to manage risk¹.

Provided for information only based on market conditions as of date of publication, not to be construed as investment recommendation or advice.

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. The portfolio risk management process includes an effort to monitor and manage risk, but does not imply low risk.
2. Provided to illustrate macro trends. Not all investments are suitable for all investors. Investors should make independent evaluation and seek financial 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.

This advertisement or publication has not been reviewed by the Monetary Authority of Singapore. It does not constitute investment advice, or an offer to sell, or a solicitation of an offer to buy any security, investment product or service. Informational sources are considered reliable but you should conduct your own verification of information contained herein. Investment involves risk. Investments in funds are not deposits and are not considered as being comparable to deposits. Past performance is not indicative of future performance and investors may not get back the full or any part of the amount invested. Dividend distributions if any are not guaranteed and are made at the manager’s discretion. Fund’s net asset value may likely have high volatility due to its investment policies or portfolio management techniques. The value of the units in the scheme and the income accruing to the units, if any, may fall or rise. Funds which are invested in emerging markets, smaller companies and financial derivative instruments may also involve higher risks and are usually more sensitive to price movements. Any applicable currency hedging process may not give a precise hedge and there is no guarantee that any hedging will be successful. Investors in a currency hedged fund or share class may have exposure to currencies other than the currency of their fund or share class. Investors should make their own investigation or evaluation or seek independent advice prior to making any investment. Please refer to the Singapore Offering Documents (including the risk factors set out therein) and the relevant Product Highlights Sheet for details at https://am.jpmorgan.com/sg/en/asset-management/per/. 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 https://am.jpmorgan.com/sg/en/asset-management/per/privacy-statement/. Issued by JPMorgan Asset Management (Singapore) Limited (Co. Reg. No. 197601586K). All rights reserved.