Global Bonds: Opportunity Within the Turmoil - J.P. Morgan Asset Management

Global Bonds: Opportunity Within the Turmoil

Contributor Nick Gartside

With the outlook for interest rates in flux, we asked Nick Gartside, J.P. Morgan’s International CIO of Global Fixed Income and one of the portfolio managers of the JPMorgan Global Bond Opportunities Fund, where he is finding opportunity and what he’s avoiding.

Q. Is now a good time to invest in global bonds?

A. Some of them, definitely. Others, not so much. Typically, fixed income investors have two enemies—high growth and high inflation. With both absent, this represents a good environment for bond investors. However, not all bond markets and sectors will benefit equally, and this is important.

Q. But what’s needed in order for me to capitalize on this market “inequality”?

A. You need two things—flexibility and deep global resources. We can draw on the research output of over 200 investment professionals based in eight countries around the world. This makes a big difference when investing across such a large and complex global opportunity set.

Because bond markets and bonds within markets don’t all move in unison, our unconstrained, flexible fixed income approach not only provides access to an enormous—and growing—global opportunity set, but can shift its exposure to wherever the greatest value can be found. With credit and interest rate risks more concentrated than ever, flexible fixed income also offers the diversification that investors need. The bottom line is there’s lots of opportunity out there at the moment, but you need the ability to fully analyze global markets and evaluate risk consistently and constantly, and you need the flexibility to go where the best value can be found.

Q. Where are you finding opportunity?

A. There are currently two big opportunities for fixed income. The first is to allocate to those geographies where central banks are going to ease more. So that’s markets like Europe, where the European Central Bank will be much more aggressive in loosening monetary policy this year. Today, over 60% of the global bond market lies outside the US. That’s a lot of opportunity. The other area that’s a real standout is high yield corporate bonds. Outside energy, the broad selloff has allowed us to find some bargains among higher quality names, particularly in Europe.

Q. And the corollary. What are the main issues keeping you up at night?

A. Given concerns over slowing global growth, we are wary of the emerging markets. Commodity prices remain under pressure and the on-again, off-again specter of further rate rises in the US increases the risk of an emerging market crisis. The stronger dollar is also having an impact on emerging markets. However, while we expect the dollar to continue to strengthen, we aren’t taking on specific foreign currency risk. Finally, market liquidity is a constant factor in our thinking. But, again, the combination of our global research platform, flexible approach and a constant eye on risk helps us avoid the vulnerable countries and sectors that benchmark-constrained approaches may not be able to.

Q. What about implementation—how do I add global bonds to my portfolio?

A. In this environment, it’s especially crucial for bond investors to be appropriately diversified across core, core complement and extended fixed income sectors that add potential for gains and increase income. The Global Bond Opportunities Fund fits in the extended sector of the triangle (learn more about J.P. Morgan’s framework for fixed income diversification). We’re agnostic to country and we’re agnostic to sector. We make our best ideas investable across a $100 trillion global market.

Learn more about J.P. Morgan’s Global Bond Opportunities Fund  

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Global Bond Opportunities Fund
Broaden the borders of your bond portfolio. The Fund provides flexible, high-conviction exposure across more than 15 fixed income sectors and 50 countries.

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The Fund's fixed income securities are subject to interest rate risk. If rates increase, the value of the Fund's investments generally declines. Under normal circumstances, the Fund will invest at least 80% of its Assets in bonds. The Fund may invest in securities that are below investment grade (i.e., "high yield" or "junk bonds") that are generally rated in the fifth or lower rating categories of Standard & Poor's and Moody's Investors Service. Although these securities tend to provide higher yields than higher-rated securities, there is a greater risk that the Fund's share price will decline.

International investing involves a greater degree of risk and increased volatility. Changes in currency exchange rates and differences in accounting and taxation policies outside the U.S. can raise or lower returns. Also, some overseas markets may not be as politically and economically stable as the United States and other nations. The risks associated with foreign securities are magnified in countries in "emerging markets." These countries may have relatively unstable governments and less-established market economies than developed countries. Emerging markets may face greater social, economic, regulatory and political uncertainties. These risks make emerging market securities more volatile and less liquid than securities issued in more developed countries. Under normal circumstances, the Fund will invest at least 40% of its total assets in countries other than the United States.

The Fund may invest in futures contracts, options, swaps, forwards and other derivatives. Many derivatives create leverage thereby causing the Fund to be more volatile than it would be if it had not used derivatives. Derivatives may be more sensitive to changes in economic and market conditions and could result in losses that significantly exceed the Fund's original investment.