The Active Advantage - J.P. Morgan Asset Management
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The Active Advantage

Delivering an active advantage

With markets shifting and returns becoming harder to achieve, it’s critical for investors to know what they own, why they own it and how it contributes to their targeted goals.

MARKETS HAVE CHANGED
INVESTOR EXPECTATIONS HAVEN’T

Return estimates for a balanced portfolio have declined in recent years.


 

Source: J.P. Morgan Asset Management. For illustrative purposes only. Expected risk and returns are based on J.P. Morgan’s 2019 Long-term Capital Market Assumptions (LTCMA). *60/40 portfolio comprises of 60% MSCI ACWI and 40% Barclays US Aggregate Bond. J.P. Morgan's Long-Term Capital Market Assumptions provides risk and return expectations, over a 10- to 15-year horizon, for more than 50 asset and strategy classes. The product of in-depth analysis and J.P. Morgan's best thinking, our assumptions are designed to inform asset allocation decisions.

WHY MIGHT THE FUTURE BE DIFFERENT FROM THE PAST?

FIXED INCOME INVESTING IS MORE COMPLEX

Investors need to be more aware of their fixed income investments as yields decline and duration increases.

Bloomberg Barclays US Aggregate Bond Index

Source Chart 1: Barclays, Bloomberg, FactSet, J.P. Morgan Asset Management; data as of 12/31/18. Duration measures the sensitivity of the price of a bond to a change in interest rates. The higher the duration the greater the sensitivity of the bond is to movements in the interest rate. Yield shown is yield to worst.

RECENT EQUITY OUTPERFORMANCE

This has influenced investor expectations even though markets may be heading towards an inflection point.

S&P 500 Price Index

Source chart 2: Compustat, FactSet, Federal Reserve, Standard & Poor’s, J.P. Morgan Asset Management. Returns are cumulative and based on S&P 500 Index price movement only, and do not include the reinvestment of dividends. Past performance is not indicative of future returns.

THREE TENETS TO BUILD STRONGER PORTFOLIOS

Understand desired outcomes

Building a portfolio begins with understanding that each investor’s desired outcomes are unique. From here, every step in the portfolio construction process is an active decision, including going passive.

Construct the optimal portfolio

Draw on a wide spectrum of investment strategies and consider the right mix between active and passive investments. Think carefully about fee and risk budgeting and understand the benefits and limitations of low cost investments.

Know what you own

Understand why you own certain investments and how changes in the market impact your portfolio.

WHAT'S NEXT?




Today we are in a late-cycle environment, where return expectations are fading and new tactics and approaches may be needed. We believe that investors should never lose sight of the power of three return drivers—diversified portfolio construction, tactical investing and manager selection—to reach their ultimate goals.

Learn more about structuring portfolios to optimize returns.
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