Portfolio Q&A: Global Income Strategy (Jan 2024)

Over the two months ending 30 September 2023, multi-asset was an asset class that recorded net inflows among Asia cross-border investors, according to Broadridge data¹. This is unsurprising given considerable uncertainty about where growth, inflation and interest rates will settle amid one of the most rapid rate hike cycles in decades.  

Faced with a fluid macro environment, income investing can prove useful to navigate uncertainty. Consistent cash flows from bonds and dividend equities can help mitigate portfolio volatility, while presenting opportunities to gain exposure to the broader market upside.

In this article, we share how active, global multi-asset strategies like the JPMorgan Global Income Strategy can be useful to seek out income opportunities without borders, bias and benchmarks.

Q: When it comes to income investing, what are our main takeaways from 2023²?

Opportunities for income abound

• The opportunity set for income has widened meaningfully since 2022.
  
• In fixed income, yields across many sectors have climbed to multi-year highs. Coupled with normalising stock-bond correlations, bonds present an attractive source of income opportunities and can function as a useful counterbalance to other risky assets in portfolios.
  
• In the equity space, global dividend stocks remain attractively valued versus the broader market and continue to present opportunities to tap into the broader market upside, but with relatively lower volatility. Notably, dividend pay-out ratios remain low relative to profitability. Contingent on the economic outlook, this suggests meaningful scope for dividend growth.

Evaluating opportunities with a multi-asset lens

• Invariably, there is a perennial temptation to lean into instruments or asset classes that present higher yield to meet an investor’s income goals. However, this is seldom a wise strategy for generating a consistent and enduring income stream, not least because it elevates concentration risk and limits one’s ability to tap into other attractive yield opportunities that can present benefits beyond just income, such as capital growth.
  
• An active, global multi-asset approach can help investors manage these trade-offs. This approach draws on global opportunities for income and capital growth and diversifies risk across a wide variety of asset classes and regional markets.

Q: As we approach the end of the current rate hike cycle, where are the opportunities for income²?

• We believe a “soft landing” outcome could present a favourable backdrop for corporate bonds. Accordingly, within fixed income, we are broadly constructive on credit, and in particular, we see opportunities in the US high-yield (HY)³ space. Valuations of  the US HY³ sector look relatively attractive, with some bonds trading below par. This can help mitigate potential downside risks should credit spreads widen or defaults rise.
  
• On the equities front, we continue to favour companies that have the potential to pay attractive dividends and are also supported by solid fundamentals. While valuations of dividend/value stocks look attractive versus the broader market, it will require a catalyst to trigger a general re-rating of this asset class. 
  
• Within equities, we retain a preference for US stocks due to its high cashflow generation and relatively stronger fundamentals. European stocks are less attractive in our view, due to the weaker growth picture in the region and tepid corporate earnings.

Q: How is the JPMorgan Global Income Strategy positioned for 2024²? 

• Looking ahead, we believe it will be important to strike a balance in our equity, credit and rates exposure, as the market environment remains fluid and uncertain.
  
• While the Strategy is currently defensively positioned, we could lean more into the credit and duration⁴ in 2024 while staying broadly neutral on equities.
  
• Overall, the Strategy continues to tap into a broad investment universe for income opportunities and dynamically allocates to asset classes and sectors with the robust risk-adjusted yields.
  

Q: What are the hallmarks of the JPMorgan Global Income Strategy? 

• Flexibility remains the hallmark of the JPMorgan Global Income Strategy. More specifically, the Fund approaches income investing without borders, bias and benchmarks.
  
• First, the Strategy transcends borders by scouring the globe for high conviction income opportunities in a risk aware fashion.
• Second, the Strategy has no inherent bias, maintaining a highly diversified portfolio across asset classes, regional markets and the capital structure. The Strategy actively adjusts these allocations as market conditions evolve.
• Third, without a benchmark as a starting point, the Strategy adopts an unconstrained approach and wields a broad investment toolkit to manage risk, optimise yield and seek robust returns.