JPMorgan Asset Management Management (JPMAM) is the fifth-largest fund manager in the world with about US$3.7 trillion under the hood across a myriad assortment of strategies ranging from cash through to alternatives.
But the manager selected one of its more traditional strategies as the first product adapted for NZ tax conditions rather than a fund from an on-trend private asset collection.
Released in March as a portfolio investment entity (PIE), the JPMAM Global Bond Fund feeds into a Luxembourg-domiciled vehicle established in 1988.
The launch comes after a volatile period for fixed income investors that has seen bond yields and inflation rise from near-, or sub-, zero conditions pre-COVID to highs not seen for at least a decade before slowly subsiding.
While bond volatility continues, especially at the long end, JPMAM fixed income portfolio manager, Arjun Vij, said the asset class now offers attractive yields at levels well-placed to deliver capital gains should the US economy fall into recession.
“Bond investors can get running yields at more than 4 per cent now,” Vij said. And if the US goes into recession investors would pocket the 4 per cent “plus a lot more in capital gains” as the central bank cuts rates.
He said after a few years when bonds and equities have moved in tandem, the asset class correlations should also “normalise” as central banks become “more concerned about growth than inflation”.
If the economic and yield backdrop looks enticing for fixed income investors, the JPMAM global bond PIE won’t stray into exotic territory to juice-up returns.
Vij, in NZ late last month, said the PIE follows the manager’s flagship ‘core’ bond fund strategy that invests primarily into investment grade securities while targeting positive duration and sensitivity to interest rates.
“We will have 10 per cent maximum in high-yield,” he said.
Currently, the fund has about a 45 per cent exposure to government bonds of various developed market countries with the remainder spread across corporate debt, “quasi-government” securities, mortgage-backed securities and some “high-quality” emerging market debt.
The strategy is also slightly overweight duration – a key risk constraint with a plus-or-minus 2 per cent limit on deviation from the benchmark Bloomberg Global Aggregate Index.
Since inception, the underlying strategy has outperformed its target of 1 per cent above the index in a feat achieved at below-benchmark volatility, Vij said.
He said while the core fund itself is managed by a team of seven, the process taps into the entire JPMAM and JP Morgan bank research ‘platform’ including about 70 analysts.
“Everything is well-researched,” Vij said. “We do our own analysis.”
Anonymised client data from the JPMorgan bank – the biggest in the US – also gives the investment arm an “edge” in discerning economic trends, he said.
Demand from NZ investors has been encouraging, he said, through various institutional and retail distribution channels. JPMAM signed an agreement with Craigs Investment Partners last year to provide research and product to the advisory network.
As at the end of March the JPMAM global bond PIE – offered by FundRock NZ – reported almost $74 million under management just three weeks after launch.