In brief
- Years of fee pressure have pushed plan sponsors toward fully passive target date funds but a growing number of sponsors now see value in including active allocations to create “blend” funds.
- In particular, using active fixed income can create an optimal mix of returns and low fees for a target date fund because of the compelling and consistent performance track record of active fixed income vs. passive options.
- The active core fixed income managers employed in the JPMorgan SmartRetirement target date funds have consistently outperformed all-passive options, net of fees, with similar or less risk, offering plan sponsors and financial advisors a compelling solution.
- The core fixed income benchmark has structural inefficiencies, which provide active managers with a consistent opportunity to generate alpha.
- Within the overall fixed income portion of SmartRetirement portfolios, diversifying asset classes, such as high yield, emerging market debt and TIPS, offer the potential for higher returns and an improved risk profile when paired with core fixed income.
Evolution of target date funds toward blend solutions
Pressure to bring down fees in target date funds pushed many plan sponsors to use passive target date funds over the past decade. However, many plan sponsors, consultants and advisors increasingly see the value of selectively using active management through an emerging category of “blend” target date funds that mix active and passive management. As a result, plan sponsors no longer face a binary choice between active and passive target date funds and can instead access active management in a targeted way.
Interest in blend target date funds is growing as evidence shows that despite the lower headline fees on all-passive solutions, the potential for alpha generation from active management can lead to better net-of-fee performance in a blend solution. Indeed, over rolling 10-year periods, the current active equity and active fixed income managers in J.P. Morgan Asset Management’s target date series have added value net of fees 100% of the time.
Over a shorter three-year rolling period, the active equity managers in our target date funds outperformed their benchmarks, net of fees, 73% of the time, demonstrating the importance of aligning expectations around investment approach and holding periods. For active fixed income, the results are truly compelling with our managers outperforming their benchmarks, net of fees, 94% of the time. On the contrary, passive options, by default, have underperformed their benchmarks 100% of the time, net of fees.¹
Although managers can build blended strategies in a variety of ways, as the first target date blend provider, JPMorgan SmartRetirement Blend series has intentionally prioritized active fixed income, given managers’ consistent ability to generate alpha. Conversely, most industry blend providers have not emphasized asset-class-specific alpha generation, instead spreading active management across all asset classes. We combine active fixed income with passive equity for a differentiated, deliberate approach to target date funds that creates an optimal mix of performance potential, risk and costs.
Active fixed income plays the largest role near retirement, when account balances are highest and the need to reduce volatility is greatest. The vast majority of blend managers today take a less targeted approach, instead mixing active and passive strategies across equity and fixed income asset classes without considering the consistency of active management outperformance within each asset class.
Given the consistent outperformance of active fixed income—both relative to active equity and, even more notably, relative to passive fixed income—retirement investors should consider active management in this asset class, regardless of the timeframe over which they evaluate performance.
Active fixed income offers significant potential for alpha generation
Active fixed income investors can benefit from a structural advantage rooted in how bond benchmarks are constructed. A clear example is core bond managers, many of whom are measured against the Bloomberg U.S. Aggregate Bond Index (“Agg”). Whereas broad equity benchmarks like the Russell 3000 represent roughly 98% of the investable U.S. public equity market, the Agg covers only a little more than half of the taxable U.S. investment‑grade bond universe.² That partial coverage can create persistent inefficiencies and give active managers room to add value by selectively allocating to sectors and securities outside the index.
Furthermore, Agg sectors have distinct characteristics and risk profiles, providing managers the opportunity to differentiate portfolios by allocating outside the Treasury-heavy index and into other sectors, such as securitized credit, intermediate corporate credit, and long corporate credit. Over five-year rolling periods, average managers in the core and core plus peer universe have outperformed passive funds net of fees (Exhibit 1).
Past performance is not indicative of future returns.
Source: Morningstar, as of 12/31/25. Excess returns are measured relative to each constituent fund’s respective Focus Prospectus Benchmark. The analysis covers open-end and ETF funds and is defined by Morningstar category and index fund (passive fund) status. The Passive Core universe reflects only the passive funds in the U.S. Fund Intermediate Core Bond Morningstar category. The Active Core universe reflects only the active funds in the U.S. Fund Intermediate Core Bond Morningstar category. The Active Core Plus universe reflects only the active funds in the U.S. Fund Intermediate Core-Plus Bond Morningstar category. Only the lowest-cost share class for each fund in the U.S. Fund Intermediate Core Bond and U.S. Fund Intermediate Core-Plus Bond categories is included.
Active fixed income managers have the potential to add value versus the benchmark through multiple levers, including managing duration and curve exposure, positioning along the yield curve, allocating across sectors and selecting individual securities.
In practice, many active managers emphasize duration and sector decisions while giving less weight to bottom-up security selection. Indeed, some active core bond managers and passive target date managers try to outperform the Agg by structurally reallocating from lower-risk sectors toward longer duration and credit exposure. While this strategy has historically increased returns relative to the Agg, it often notably increases risk.
Security selection therefore remains a key advantage that passive strategies lack. Risk-aware security selection can be a powerful source of value in bond portfolios because fixed income returns are inherently asymmetric—upside is typically limited and known, while downside can be meaningful. That makes disciplined downside protection essential. Within SmartRetirement, the active core bond allocation is managed using a rigorous, research-driven security selection process designed to assess each holding’s risk/return profile and confirm it aligns with the portfolio’s objectives.
Taken together, these elements aim to deliver a more durable return profile. Case in point, the core fixed income strategies used in all of the JPMorgan SmartRetirement Series have outperformed both the benchmark and passive options with less volatility, offering a compelling combination of return versus risk compared to the Morningstar peer universe (Exhibit 2).
Past performance is not indicative of future returns. See below for standardized performance.
Source: Morningstar, as of 6/30/26. The analysis covers open-end and ETF funds whose focus prospectus benchmark is the Bloomberg U.S. Agg Bond TR USD and is defined by Morningstar category and index fund (passive fund) status. The Passive Core universe reflects only the passive funds in the U.S. Fund Intermediate Core Bond Morningstar category. The Active Core universe reflects only the active funds in the U.S. Fund Intermediate Core Bond Morningstar category. The Active Core Plus universe reflects only the active funds in the U.S. Fund Intermediate Core-Plus Bond Morningstar category. Only the lowest-cost share class for each fund in the U.S. Fund Intermediate Core Bond and U.S. Fund Intermediate Core-Plus Bond categories is included.
Beyond active core fixed income, SmartRetirement’s fixed income allocation also includes dedicated sleeves to active managers in Treasury Inflation-Protected Securities (TIPS), emerging market debt and high yield, further expanding the opportunity set for potential excess return across the overall bond portfolio.
High yield is SmartRetirement’s second-largest fixed income allocation after core bonds, making active management in this segment particularly impactful. Passively replicating or actively outperforming standard high yield benchmarks can be difficult because many are not directly investable and can understate real-world frictions such as transaction costs, an important consideration given the relative illiquidity of high yield markets. Even so, active high yield managers have historically tended to outperform passive approaches, largely because they are not forced to hold deteriorating credits or new index entrants with weakening fundamentals.
Active managers can also manage default risk by tilting toward higher-quality issuers, and they retain flexibility in downturns—positioning for restructurings and potentially capturing restructuring upside. Active outperformance is even more prevalent in downturns. The broad high yield market had negative returns in only four calendar years—2008, 2015, 2018 and 2022. In all four years, active high yield managers (on average) outperformed passive high yield managers.³
Diversification paired with active fixed income offers stronger portfolio outcomes
Beyond performance potential, an actively managed fixed income portfolio that invests across the U.S. Aggregate, high yield, emerging market debt and TIPS can provide meaningfully broader diversification than a passive, target-oriented fixed income allocation. Credit sectors such as high yield and emerging market debt, for example, have historically delivered a return profile distinct from core bonds—typically with lower inflation sensitivity—and have notably outperformed core fixed income since the inflation cycle began in 2021.
With limited return levers, some notable passive target date providers either replicate the Agg or attempt to alter it by adjusting duration and/or increasing investment grade credit exposure, as shown in the first three examples in Exhibit 3. However, historically, these strategies have not significantly boosted returns; rather, they have tended to increase risk and are projected to do so going forward.
Broadening fixed income exposures beyond core and including higher-yielding sectors, such as high yield and emerging market debt, have historically enhanced returns and improved the overall risk/return profile through diversification (Diversified Fixed Income, Example 4, Exhibit 3).
Active management can provide an even more attractive risk/return profile, as shown by SmartRetirement’s results over the past 10 years (Exhibit 3), which have historically used active managers (SmartRetirement Fixed Income Performance (net of fees), Example 5).
Past performance is not indicative of future returns.
Source: J.P. Morgan Asset Management, Long-Term Capital Market Assumptions (2026), used for forward-looking projections. Historical returns are as of 06/30/2026. The pie charts for “Diversified Fixed Income” and “SmartRetirement Fixed Income Performance” represent the current strategic allocations in the JPMorgan SmartRetirement Blend 2030 mutual fund. Performance figures for “Diversified Fixed Income” use allocations based on the current normalized fixed income allocations for the JPMorgan SmartRetirement Blend 2030 Fund (the largest vintage and the only vintage that includes all fixed income asset classes in the series). Historical performance figures for “SmartRetirement Fixed Income” are based on attribution for the JPMorgan SmartRetirement Blend 2030 Fund using actual normalized historical allocations across fixed income managers and the net-of-fees performance of those fixed income managers. Allocations for other portfolios reflect the use of gross-of-fee benchmarks. “Doubling U.S. Agg Bond exposure to Long Duration Credit” and ”Long Duration Fixed Income”—with each asset class representing approximately 8% of the Bloomberg U.S. Aggregate Bond Index—is doubled by adding an additional 8% allocation to the Bloomberg U.S. Long Credit Bond Index and the Bloomberg U.S. Long Treasury TR Index, respectively, with the remainder allocated to the Bloomberg U.S. Aggregate Bond Index. A 10-year historical period is used, as it is the longest standardized time period available for the JPMorgan Blend mutual funds.
Optimal blend: active fixed income and passive equity
Fixed income offers active managers compelling potential to add value by taking advantage of the full fixed income opportunity set, including investing outside of the traditional benchmarks and seeking to minimize downside risk through research-driven, fundamental security selection across core fixed income, high yield, emerging market debt and TIPS. This multi-sector approach also broadens diversification and can support an attractive risk/return profile.
We believe in the ability of active management to deliver across asset classes, yet we recognize that many plan sponsors are turning to lower-fee solutions within the target date market. Accordingly, we think the benefits of active fixed income management can be combined with passive equity exposure to create blend target date funds that can improve fee efficiency, support higher expected returns and deliver a smoother investment experience for participants through lower volatility.
Please contact your J.P. Morgan Asset Management representative to learn more about our target date fund offering.