Go beyond borders, biases and benchmarks in fixed income

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This is a sponsored article from J.P. Morgan Asset Management.

Fixed income investing has rebounded in 2019 as the US Federal Reserve stood ready to keep the global economy on track. In September, the Fed cut its benchmark rate for the second time this year. And global central banks have stayed accommodative and in sync.

Fixed income investing would likely remain on investors’ radar as a mixed picture persists in the markets.

Fixed maturity strategies have been attracting strong inflows from Asian private bank investors in 20191. Fixed maturity products (FMPs) are bond funds with a fixed maturity, and generally invest in a single fixed income sector. FMPs may be listed but as the trading volumes of FMPs are generally low, investors may not be able to redeem before maturity. Thus, FMPs may be relatively illiquid.

In a complex and uncertain market environment, investors could strive to be dynamic2 and invest opportunistically across the fixed income universe based on their investment objectives and risk appetite.

No borders, no biases and no benchmarks
The size of the global bond market is about US$110 trillion3 and income opportunities exist across a wide range of sectors from government bonds and investment-grade corporate bonds to non-traditional ones such as high-yield corporate bonds and securitised debt.

Fixed income covers a broad spectrum. We employ an unconstrained fixed income strategy, which manages risk through diversificationand strives to harvest uncorrelated risk premiums from the global fixed income landscape.

We aim to enhance total returns and manage risks in JPMorgan Global Bond Opportunities Strategy by diversifying across 15 traditional and niche fixed income sectors, and in more than 50 countries. We seek high conviction ideas from 278 investment professionals from our global fixed income platform and build into one single portfolio. With our flexible asset allocation, we are also dynamic in shifting our allocations for different market environments.

JPMorgan Income Strategy manages risk through diversification and strives to harvest uncorrelated risk premia from the global fixed income landscape. Our aim is to harvest all the risk premia, and incorporate them together in a balanced way which could help reduce risk while striving to preserve the expected return. We have an income bank mechanism to save our monthly coupon income5 for rainy days, giving us more flexibility to pay income in a sustainable way. This could help pave the way for an income stream with much less volatility.

FMPs or an unconstrained approach6?
In many ways, you could say that choosing a fixed income strategy is much like selecting which bike to use for different journeys. Let us illustrate:

FMPs = Single-speed cruiser bike

Unconstrained strategies = Multi-speed mountain bike

Road conditions
(market conditions for the specific strategy)

Built for flat, paved paths: suitable for a short commute, requiring basic pedalling, balancing and steering Built to go anywhere: more tools at its disposal to handle all terrains and road conditions, but also requires a more sophisticated rider

Rider experience
(what investors can expect)

Comfortable riding experience: wide, cushioned seats, with minimal bumps With greater variation comes greater complexity: off-road biking can mean a bumpier ride, involving more gear changes

Performance

Simple and predictable: gets you from point A to point B smoothly and efficiently, but less tools to deal with variations in road conditions Riding style varies depending on road conditions: can go faster when the road is flat, or pull back and switch gear to use more power on hilly terrain

Souce: Shutterstock

Conclusion
Market volatility can be unsettling. Our 278 investment professionals from our global fixed income platform, alongside a robust investment process, strive to dynamically manage the portfolios as market conditions change. A fixed income strategy isn’t always fixed. Your investment portfolio doesn’t have to be either.

1 “Bond strategies dominate private bank fund inflows in Q2”, Asian Private Banker, 30 July 2019.
2 Investment involves risks and not all investment ideas are suitable for all investors.
3 Source: J.P. Morgan Asset Management, Bank for International Settlement, as of 30 June 2019.
4 Diversification does not guarantee positive returns or eliminate risk. Provided for Information only based on current market conditions subject to change from time to time, not to be construed as Investment recommendation. Forecasts/ Estimates may or may not come to pass.
5 Positive distribution income / yield does not imply positive return and it is not guaranteed. Distributions may be paid from capital.
6 Investment involves risks. It is for illustrative purpose only and not indicative of the actual return likely to be achieved.

For Professional Investors and Financial Intermediaries only.
This advertisement or publication has not been reviewed by the Monetary Authority of Singapore and the Securities and Futures Commission in Hong Kong. Investments in funds are not comparable or similar to deposits. Investment involves risk, value of units may rise or fall including loss of any or all of the amount invested. Not all investment ideas are suitable for all investors. Past performance is not indicative of future performance. Diversification does not guarantee positive returns or eliminate risk of loss. Investors should make their own evaluation or seek independent advice before investing. The opinions and views expressed here are as of the date of this publication, which are subject to change and are not be taken as or constructed as investment advice. Issued in Singapore by JPMorgan Asset Management (Singapore) Limited (Co. Reg. No. 197601586K) and in Hong Kong by JPMorgan Funds (Asia) Limited. All rights reserved.

This is a sponsored article from J.P. Morgan Asset Management.

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