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Income investing without borders, bias and benchmarks

Income investing without borders, bias and benchmarks

  • 01 August 2023
  • By J.P. Morgan Asset Management
  • 5 mins read

The merits of income investing in uncertain times

Resilient economic data, softening inflation and optimism about new technologies as well as sturdy earnings have buoyed risk sentiment of late. Yet there remains considerable uncertainty about where growth, inflation and interest rates will settle amid one of the most rapid rate hike cycles in forty years.

Faced with a fluid macro environment, income investing can prove useful to navigate uncertainty. Consistent cash flows from bonds and dividend equities can help mitigate portfolio volatility, while presenting opportunities to gain exposure to the broader market upside.

Opportunities for income abound

The opportunity set for income has widened meaningfully since 2022. In fixed income, yields across many sectors have climbed to multi-year highs. Coupled with normalising stock-bond correlations, fixed income presents an attractive source of income opportunities and can function as a useful counterbalance to other risky assets in portfolios.

In the equity space, global dividend stocks have handily outperformed their growth peers over the last 2.5 years, and with lower volatility versus the broader index. Notably, dividend pay-out ratios have been low relative to profitability. Contingent on the economic outlook, this could suggest plenty of room for dividend growth.

Bond yields have increased significantly across many fixed income sectors

Global dividend equities have outperformed the broader index and growth equities over the past 2.5 years

Source: Bloomberg, FactSet, ICE BofA Merrill Lynch, J.P. Morgan Economic Research, J.P. Morgan Asset Management. Data as of 30.06.2023.
(LHS) US Mortgage Backed Securities1 represented by Bloomberg US Mortgage Backed Securities Index; Asset Backed Securities1 represented by Bloomberg US Asset Backed Securities Index; US Agency Securities1 represented by Bloomberg US Agencies Index; Global Investment Grade Credit represented by Bloomberg Global Aggregate Corporate Index; US High Yield2 represented by Bloomberg US Corporate High Yield Bond Index; European High Yield2 represented by Bloomberg Pan European High Yield; Emerging Market Debt USD represented by J.P. Morgan Emerging Market Bond Index (EMBI) Global Diversified Index.
(RHS) Global equities represented by MSCI All Country World Index (MSCI ACWI). Global high dividend equities represented by MSCI ACWI High Dividend Yield Index. Global growth equities represented by MSCI ACWI Growth Index.
Provided for information only to illustrate macro trends, not to be construed as offer, research or investment advice. Investments involve risks. Not all investments are suitable for all investors. Indices do not include fees or operating expenses and are not available for actual investment. Past performance is not indicative of current or future results. Yield is not guaranteed. Positive yield does not imply positive return.

Evaluating opportunities with a multi-asset lens

Invariably, there is a perennial temptation to lean into instruments or asset classes that presents the highest yield to meet an investor’s income goals. However, this is seldom a wise strategy for generating a consistent and enduring income stream, not least because it elevates concentration risk and limits one’s ability to tap into other attractive yield opportunities that can present benefits beyond just income, such as capital growth. Moreover, market leadership is seldom static or consistent as it constantly shifts on the back of evolving economic conditions.

An active, global multi-asset approach can help investors manage these trade-offs. It can draw on global opportunities for income and capital growth, while diversifying risk across a wide variety of asset classes and regional markets. Here, reach and flexibility can create a meaningful difference4.

The flexibility to search and allocate

Reach and flexibility are indeed the hallmarks of the JPMorgan Global Income Fund. With exposure to over 3000 individual securities in over 90 markets3, the Fund operates with a genuine diversification remit. It taps into a broad investment universe that stretches across asset classes, geographies and the full breadth of the capital structure. The Fund can seek opportunities from traditional sources of income such as high yield bonds2, investment grade corporate credit, emerging market debt, high dividend equities and securitised assets1, as well as non-conventional income generating assets such as preferred equities, convertibles and equity-linked-notes. By integrating rigorous bottom-up security selection with active top-down asset allocation, the Fund seeks to harness the income and capital growth potential of a deep and expansive opportunity set.

The flexibility to search far and wide for yield opportunities and the ability to actively adjust allocations in the face of changing market conditions have helped the Fund generate competitive portfolio yield with lower volatility versus individual asset classes as illustrated below4.

The JPMorgan Global Income Fund has recorded higher yield and lower volatility versus broad market indices

Source: Bloomberg Barclays. Data as of 30.06.2023. Volatility is based on annualised 10-year volatility. Running yields are based on current yield-to-maturity for bonds and dividend yield for equities. Developed World Equity: MSCI World Index; Emerging Markets Equity: MSCI Emerging Markets Index; World High Dividend Equity: MSCI All Country World High Dividend Yield Index; World Government Bonds: FTSE World Government Bond Index; US Treasuries: Bloomberg US Intermediate Treasury Index; 60/40 Equity-Bond Portfolio: MSCI World 100% Hedged to EUR Index (60%) / Bloomberg Global Aggregate Index (40%). Past performance is not indicative of current or future results. Yield is not guaranteed. Positive yield does not imply positive return. Click here to check the latest performance of the Fund.

This has been a consistent feature of the Fund over the years and across market cycles. By employing a flexible strategy, the Fund has navigated multiple market challenges over the past decade. As illustrated below, income has been a consistent contributor to the Fund’s overall performance over time and has cushioned total return during volatile periods. Broad diversification and active asset allocation have been instrumental in mitigating downside risks.

Moreover, with access to a vast investment universe, the Fund seeks to harvest opportunities for capital growth and participate in the upside as markets recover. Notably, the Fund has a track record of robust recoveries post negative years. This has contributed to a consistent and resilient total return profile across market cycles.

The JPMorgan Global Income Fund has exhibited a consistent income and performance track record through a decade of market challenges, with strong recovery post negative years

Source: J.P. Morgan Asset Management, Bloomberg. Data as of 30.06.2023.
The figures stated are average annualised quarterly dividend yields based on share class A (div) - USD(hedged) since inception. Annualised yield is calculated based on the latest dividend distribution of share class A (div) in USD with dividend reinvested and may be higher or lower than the actual annual dividend yield. Past pay-out yields and payments do not represent future pay-out yields and payments. Positive yield does not imply positive return. Dividend is not guaranteed. Distributions may be paid out of capital or distributable income or both. Any payments of distributions by the Fund are expected to result in a decrease in the net asset value per share on the ex-dividend date. Investments involve risks and are not comparable to deposits. The value of the units and the income accruing, if any, may fall or rise. Funds that invest in or where pay-out may be generated from financial derivatives strategies may involve higher risks. The declaration and payment of dividends is at the discretion of the manager and is subject to the dividend policy referred in the Offering Documents. Please refer to the Offering Documents for details on the Fund’s investment strategy including risk factors and the dividend policy. For detailed disclosures please visit www.jpmorganam.com.sg.
Fund performance is shown based on the NAV of the share class A (div) in USD with income (gross of shareholder tax) reinvested including actual ongoing charges excluding any entry and exit fees. Past performance is not a reliable indicator of current and future results.
^Due to a change in pricing model, post 31 October 2016 (effective date), performance calculations are on a single pricing basis, taking into account any initial and redemption fees. Prior to 31 October 2016, performance calculations are on an offer-to-bid basis. The maximum initial charge (if any) is taken into account for performance calculations.
Click here to check the latest performance of the Fund.

No borders. No bias. No benchmarks.

In summary, the JPMorgan Global Income Fund approaches income investing without borders, bias and benchmarks.

  • First, the Fund transcends borders, scouring the globe for high conviction income opportunities in a risk aware fashion.
  • Second, the strategy has no inherent bias, with the Fund maintaining a highly diversified portfolio across asset classes, regional markets and the capital structure. The Fund actively adjusts these allocations as market conditions evolve.
  • Third, without a benchmark as a starting point, the Fund adopts an unconstrained approach and wields a broad investment toolkit to manage risk, optimise yield and seek robust returns.

Altogether, such flexibility has been instrumental in helping the fund navigate different market environments, all while seeking consistent income and capital growth.

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Additional Information

Important notices

JPMorgan Global Income Fund is the marketing name of the JPMorgan Investment Funds – Global Income Fund.

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

  1. Securitisation is the process in which certain type of assets, such as mortgages or other types of loans, are pooled so that they can be repackaged into interest-bearing securities. Examples of securitised debt include asset-backed securities and mortgage-backed securities.
  2. 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.
  3. Source: J.P. Morgan Asset Management. Data as of 30.06.2023.
  4. For illustrative purposes only based on current market conditions, subject to change from time to time. Not all investments are suitable for all investors. Exact allocation of portfolio depends on each individual’s circumstance and market conditions.

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