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Riding the waves of change with the JPMorgan Income Active ETF
   
  March 2024
 
 
Can the Federal Reserve extend the soft landing?

History suggests this could be a tall order. Over the last 75 years, the US economy has rarely spent more than 24 months in full employment1. For perspective, the unemployment rate has remained at or below 4% for 26 consecutive months in the current cycle2.

The path ahead appears challenging given that the Fed may need to balance four factors in the last mile of its inflation fight. The US central bank could seek to bring down (1) growth to its potential rate, (2) inflation to its 2% target and (3) interest rates to long-run neutral levels, all while (4) keeping the unemployment rate steady at around current full employment levels.

 

At full employment, we believe the path to extending the soft landing is relatively narrow.3



Source: J.P. Morgan Asset Management. For illustrative purposes only.

This balancing act entails a great deal of uncertainty. Loosening financial conditions, emerging supply side constraints and persistent geopolitical challenges may potentially influence near-term inflation even if the longer-term downtrend remains intact. While these inflationary pressures are likely transient in nature, this could still impact efforts to recalibrate monetary policy.  

In our view, higher-than-expected near-term inflation could lead to tighter financial conditions in 1H 2024 as rate expectations adjust. This could amplify existing economic vulnerabilities and lead to weaker headline economic data or potentially a recession in 2H 2024.
The case for active fixed income ETFs

Given the wide range of outcomes in the current economic environment, in addition to higher market volatility, active and flexible decision-making remains vital to optimise investment strategies.

Here, active fixed income ETFs can be useful for a variety of reasons.

Dynamic allocation
While a passive ETF will automatically drift towards the largest debt issuers irrespective of the quality of their underlying balance sheets, an actively managed fixed income ETF can deliberately shift allocation towards higher-quality issuers and away from those that could be at risk of rating downgrades.

Ability to make active decisions
Since a passively-managed ETF is designed to track an index, there is no opportunity to make active decisions. By contrast, active managers have the flexibility to upgrade credit quality, increase liquidity profile, manage duration and capture yield by allocating across different sectors of the fixed income market, subject to their investment objectives.

Liquid, transparent and cost-effective
Active fixed income ETFs are cost-effective, highly liquid, provide daily transparency on the underlying portfolio, and share the same primary market mechanism as passive ETFs. Investors are able to buy and sell active ETFs throughout the day, providing real-time price discovery.

JPMorgan Income Active ETF:
Active management for active markets
Active duration4 management
  • A distinctive aspect of the Income Strategy is its active duration4 management which has been instrumental in steering the portfolio through changing economic conditions and evolving policy landscapes6.

  • At around 3 years, the Strategy’s current duration4 positioning remains prudent as it seeks to balance the risks of potentially higher near-term inflation (around the downtrend) and recession concerns that continue to lurk in the background. A sustained normalisation of stock-bond correlations will be an important signal to meaningfully increase high quality duration4 in the portfolio to help manage potential recession risks6.

Flexible portfolio allocation

  • The Income Strategy also has the flexibility to dynamically adjust portfolio allocations to navigate different market environments.

  • Approaching potential economic challenges anticipated in 2H 2024, the Strategy would seek to decrease exposure to fixed income sectors that are generally positively correlated with equities such as high yield5 (HY) and emerging market (EM) credit6.

Achieving higher yield with lower volatility

  • By employing an unconstrained approach, the Income Strategy can tap into opportunities across both traditional and extended fixed income sectors.

  • Diversification is broadly achieved by combining various types of bonds that exhibit different risk characteristics, helping to lower the portfolio’s volatility while still maintaining an attractive yield6,7. Currently, with interest rates peaking and yields hovering at relatively elevated levels across many bond sectors, there is a potential for meaningful capital appreciation should interest rates decline. These will be additive to the overall yield of the Strategy, potentially contributing to overall investment returns.

JPMorgan Income Active ETF
CBOE ticker: JPIE

JPMorgan Income Fund
ISIN code: AU60PER07162
Management fees & costs: 0.50%
Lonsec: Recommended		 Management fees & costs: 0.50%
Lonsec: Recommended
Zenith: Recommended
   
Learn more about JPMorgan Income Strategies

JPMorgan Income Active ETF >

JPMorgan Income Fund >

 

Provided for information only based on market conditions as of date of publication, not to be construed as offer, research, investment recommendation or advice. Forecasts, projections and other forward looking statements are based upon current beliefs and expectations, may or may not come to pass. They are for illustrative purposes only and serve as an indication of what may occur. Given the inherent uncertainties and risks associated with forecast, projections or other forward statements, actual events, results or performance may differ materially from those reflected or contemplated.

JPMorgan Income ETF (JPIE) is the marketing name for JPMorgan Income Active ETF (Managed Fund).

Diversification does not guarantee investment return and does not eliminate the risk of loss.

1. Source: Bloomberg, J.P. Morgan Asset Management. Data as of 05.01.2024.
2. Source: US Bureau of Labor Statistics, J.P. Morgan Asset Management. Data as of 31.01.2024.
3. Source: J.P. Morgan Asset Management. For illustrative purposes only. NAIRU, or Non-Accelerating Inflation Rate of Unemployment, is the level of unemployment at which inflation is stable or constant in the economy.
4. Duration is a measure of the sensitivity of the price (the value of the principal) of a fixed income investment to a change in interest rates and is expressed as number of years.
5. High-yield credit refers to corporate bonds which are given ratings below investment grade and are deemed to have a higher risk of default. Yield is not guaranteed. Positive yield does not imply positive return.
6. Past Performance is not indicative of current or future results. Yields are not guaranteed and may change over time. Positive yield does not imply positive return. Holdings, duration, allocations or exposure in actively portfolio managed portfolios are subject to change from time to time.
7. The portfolio risk management process includes an effort to monitor and manage risk, but does not imply low risk.

The fees and costs are comprised of a management fee, fund expenses and indirect costs. Please refer to the Fees and Cost section of the relevant Product Disclosure Statement for more information.

The rating issued 09/2023 for JPMorgan Income Active ETF (Managed Fund) (Hedged) & 09/2023 for JPMorgan Income Fund are published by Lonsec Research Pty Ltd ABN 11 151 658 561AFSL 421 445 (Lonsec). Ratings are general advice only, and have been prepared without taking account of your objectives, financial situation or needs. Consider your personal circumstances, read the product disclosure statement and seek independent financial advice before investing. The rating is not a recommendation to purchase, sell or hold any product. Past performance information is not indicative of future performance. Ratings are subject to change without notice and Lonsec assumes no obligation to update. Lonsec uses objective criteria and receives a fee from the Fund Manager. Visit https://www.lonsec.com.au/ for ratings information and to access the full report. © 2024 Lonsec. All rights reserved.

The Zenith Investment Partners (ABN 27 103 132 672, AFS Licence 226872) (“Zenith”) rating for PER0716AU (assigned March 2023) referred to in this piece is limited to “General Advice” (s766B Corporations Act 2001) for Wholesale clients only. This advice has been prepared without taking into account the objectives, financial situation or needs of any individual, including target markets of financial products, where applicable, and is subject to change at any time without prior notice. It is not a specific recommendation to purchase, sell or hold the relevant product(s). Investors should seek independent financial advice before making an investment decision and should consider the appropriateness of this advice in light of their own objectives, financial situation and needs. Investors should obtain a copy of, and consider the PDS or offer document before making any decision and refer to the full Zenith Product Assessment available on the Zenith website. Past performance is not an indication of future performance. Zenith usually charges the product issuer, fund manager or related party to conduct Product Assessments. Full details regarding Zenith’s methodology, ratings definitions and regulatory compliance are available on our Product Assessments and at Fund Research Regulatory Guidelines (https://www.zenithpartners.com.au/our-solutions/investment-research/regulatory-guidelines).

All investments contain risk and may lose value. Before investing, obtain and review the Product Disclosure Statement of the Fund and Target Market Determination which have been issued by Perpetual Trust Services Limited, ABN 48 000 142 049, AFSL 236648, as the responsible entity of the fund available on https://am.jpmorgan.com/au to understand the various risks associated with investing in the Fund and in making any investment decision and for more detailed information relating to the risks of the Fund, the type of customer (target market) it has been designed for and any distribution conditions. Past performance is not a reliable indicator of future performance and investors may not get back the full amount invested. Future performance and return of capital is not guaranteed.  ETFs have fees that reduce their performance, indexes do not. Investors cannot directly invest in an index. Information is considered correct at the time of issue but no liability for errors or omissions will be accepted by JPMorgan Asset Management (Australia) Limited or its affiliates. This document is intended solely for the person to whom it is provided by the issuer. Positive yield does not imply positive returns. Yields are not guaranteed. Fund holdings and performance are likely to have changed since the report date. No provider of information presented here, including index and ratings information, is liable for damages or losses of any type arising from use of their information.

Information from communications with you will be recorded, monitored, collected, stored and processed consistent with our Australian Privacy Policy available at https://am.jpmorgan.com/global/privacy. This document does not take into account any specific investor’s objectives, financial situation or needs. Investors should seek financial advice, refer to offering documents including risk factors and make independent evaluation before investing. Past performance is not a guide to current or future results. Please refer to fund’s offering documents for details relating to risk factors, fees and expenses, distribution policy.

Information Sources: Fund information, including performance calculations and other data, is provided by J.P. Morgan Asset Management (the marketing name for the asset management businesses of JPMorgan Chase & Co and its affiliates worldwide). All data is as at the document date unless indicated otherwise. Due to rounding, values may not total 100%. Top holdings, sector and country or region excludes cash. Holdings may be subject to change from time to time.

Further Information: For further information please email us at jpmorgan.funds.au@jpmorgan.com, telephone 1800 576 468 or visit our website am.jpmorgan.com/au/

Material ID: 09fp240603020950

 

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