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L O S T D E C A D EOpportunities in global fixed income
For professional investors only – not for use by or onward distribution to retail investors
Why the “Lost Decade”?: debt
Overall Debt% of GDP, latest
Over 400
300 – 399
200 – 299
0 – 199
Russia
China
India
Canada
UnitedStates
Brazil
Japan
UK Germany
France
Spain Italy
Switz.
Source: J.P. Morgan Asset Management, McKinsey. For illustrative purposes only
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Dealing with debt: growth
Leading indicators are flat
-3.5
-3.0
-2.5
-2.0
-1.5
-1.0
-0.5
0.0
0.5
1.0
1.5
2003 2005 2007 2009 2011
USD GBP EM - GDP weights
Source: J.P. Morgan Asset Management, Bloomberg
3
Dealing with debt: Europe
Source: J.P. Morgan Asset Management. For illustrative purposes only
4
Liquidity
Solvency
Devaluation
Inflation
Why always me? UK vs Europe
MoreAusterity
LowGrowth
HighDebt
MissedDeficits
Source: J.P. Morgan Asset Management.
5
0
1
2
3
4
5
1 21 41 61 81 101 121 141 161 181 201
Japan 10yr Yields: starting Jan 1995
US, UK, Germany 10yr yields equally weighted: starting June 2008
Months
We’ve been here before...
Government bonds: return free risk
%
Source: J.P. Morgan Asset Management, Bloomberg. For illustrative purposes only
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W H A T W O U L D I N D Y D O ?Is 2012 the new 2011? Adventures with Indy
Adventure Level
Very High Moderate Very Low High
Adventure Level What to own
1 Extreme Peripheral Europe
2 Very High EMFX
3 High High Yield
4 Moderate EMD
5 Slight IG Corporates
6 Low Mortgages
7 Very Low UST/Gilt
% %
High Yield OAS (LHS)UST 10yr Yield (RHS)
4
6
8
10
Dec Mar Jun Sep
1
2
3
4
Source: J.P. Morgan Asset Management7
0
2
4
6
8
10
Dec 2010 Mar 2011 Jun 2011 Sep 2011 Dec 2011 Mar 2012
BofA ML UK Gilts BofA ML Global Corprates BofA ML US High Yield
Where do you raid?
Comparing yields 1 year ago and now
%31st May 2011 31st May 2012
6.91%
3.73%
2.96%
7.79%
3.37%
1.64%
Source: Bank of America Merrill Lynch, Bloomberg. Past performance is not an indication of future performance.
8
0
2
4
6
8
10
12
0
5
10
15
20
25
2001 2003 2005 2007 2009 2011
US Govt Yield US High Yield Spread Default rate (rhs)
Hunting for income
High yield: Risk vs. reward%%
Source: J.P. Morgan Asset Management.
9
Don’t ignore investment grade credit
Spreads have room to narrow
bps
25
75
125
175
225
275
325
375
Apr 10 Oct 10 Apr 11 Oct 11 Apr 12
US OAS GBP OAS JPY OAS
Source: Barclays Capital. Data as of May 2012. Past performance is not an indication of future performance.
10
Who has the capacity to repay debt?
Italy
United States
United Kingdom
Spain
Greece
France
Germany
Venezuela
Korea
IndonesiaMexico
China
South Africa
India
Brazil
Hungary
Poland
Russia Argentina
-12
-10
-8
-6
-4
-2
-
2
4 - 20 40 60 80 100 120 140 160 180
20
11 F
isc
al D
efi
cit
(% o
f G
DP
)
Public Debt 2011 (% of GDP)
Developed Markets Developing Markets
Source: IMF Outlook as at September 2011
11
JPM Strategic Bond Fund (OEIC)
Key features Risk and return targets*
‘Best ideas’ actively managed global
bond fund
Diversified opportunity set across global
fixed income and currency markets.
Dynamic sector management, aiming to
only take risk when compelling
investment opportunities are identified
Return: 3% above cash
Duration: 0-9 years
Quality: Maximum 50% below
Investment Grade
Currency: Mainly hedged to base
currency (80%)
There can be no assurance that the Fund will achieve its investment objective, the Target Return or any other objectives. The target return shown above is neither guaranteed by nor binding on the Manager. Please refer to the Fund Prospectus. * Risk and return targets shown gross of all expenses and investment management fees, they are the objective of the fund manager. Please read the Prospectus for more information about the investment objective and investment policy of the fund.
yield 3.48%
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Jun 09 Sep 09 Dec 09 Mar 10 Jun 10 Sep 10 Dec 10 Mar 11 Jun 11 Sep 11 Dec 11 Mar 1299.0
104.0
109.0
114.0
119.0
124.0
129.0
134.0
JPM Strategic Bond Fund (JPM A - Net Acc)
GBP Broad Market Index
3 Month GBP LIBOR
Past performance is not a guide to the future. Source: Bloomberg. Fund return shown net of all applicable expenses, fees and taxes for ‘JPM A – Net Acc’ class. Please refer to the fund’s prospectus for a description of the other available classes of shares, the performance of which will differ from that shown above. Fund and benchmark rebased to 100 as of fund inception. *Inception date: 6 th May 2009. GBP Broad Market Index shown is the Merrill Lynch Sterling Broad Market Index (UK00).
Performance JPM Strategic GBP Broad 3 Month Bond Fund Market Index GBP
LIBOR
Since Inception* 28.18% 35.97% 2.63%
JPM Strategic Bond Fund (OEIC): investment performanceAs at 31 May 2012
yield 3.48%
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Benefiting from a global strategic allocation
Source: J.P. Morgan Asset Management; Data as of May 2012 Note: Duration exposure is achieved through exchange traded bond futures.
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Debt overhang Interest rates to remain low
Japan is the roadmap Fixed Income returns 'surprise'
Anaemic recovery Hunting for yield
Regulatory pressure Credit analysis critical
Global opportunities High Yield, Corporates, EMD
The next instalment: Avoiding the Temple of Doom
Globally Integrated. Research Driven
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JPM Strategic Bond FundObjective
To maximise returns by investing primarily in a global portfolio of fixed and floating rate debt securities. The Fund may invest in developed and emerging market countries and hold investment grade, non-investment grade and unrated bonds. The Fund may have a concentrated portfolio and may have a significant exposure to any one country, sector or issuer, which may include emerging markets and non-investment grade or unrated bonds, at any time. Allocations between countries, sectors and ratings of bonds may vary significantly at any time. The Fund may use derivatives for investment purposes or Efficient Portfolio Management including hedging, where appropriate. The Fund is also permitted to invest up to 100% in government and public securities.
Risk Profile
Bond funds may not behave like direct investments in the underlying bonds themselves. By investing in bond funds, the certainty of receiving a regular fixed amount of income for a defined period of time with the prospect of a future known return of capital is lost.
Bond prices can fluctuate significantly depending not only on the global economic and interest rate conditions but also on the general credit market environment and the creditworthiness of the issuer.
The credit quality of high yield bonds is below investment grade and they usually offer higher yields to compensate for the reduced creditworthiness and the increased risk of default relative to investment grade bonds.
Bonds with a lower credit rating may have a higher risk of defaulting which may in turn have an adverse effect on the performance of Funds which invest in them.
The investment policy of the Fund permits the use of derivatives and/or forward transactions for investment purposes. As a result the Fund may sometimes be leveraged, potentially increasing the volatility and therefore risk of the Fund.
The Fund may have a significant exposure to asset and mortgage backed securities (ABS and MBS). Owing to the nature of some ABS and MBS, the exact timing and size of cashflows paid by the securities may not be fully assured.
Bond funds will normally distribute a combination of coupon and the expected discount/premium on the securities. Therefore, a Fund’s distribution will comprise income received and an element of projected capital gains or losses. This could result in an element of capital gain being taxed as income in the hands of an investor.
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Important informationFor Professional Investor use only – not for retail use or distribution.
This material is not an offer or solicitation for the purchase or sale of any financial instrument in any jurisdiction, nor is it a commitment by J. P. Morgan Asset Management or any of its subsidiaries to enter into any transaction referenced herein. All information provided by J. P. Morgan Asset Management herein is indicative, is based on certain assumptions and current market conditions and is subject to change without notice. Accordingly, no reliance should be placed on the information herein. In deciding whether to enter into any transaction or strategy referenced herein, the recipient should rely solely on the final documentation which will contain the definitive terms and conditions relating to any referenced transaction or strategy.
These materials have been provided for illustrative purposes only and should not be relied upon by you in evaluating the merits of investing in any securities or strategies mentioned herein. Past performance is not a guide to the future.
Any forecasts, opinions and statements of financial market trends expressed are J. P. Morgan Asset Management’s own at the date of this document and may be subject to change without notice. Any research in this document has been obtained and may have been acted upon by J. P. Morgan Asset Management for its own purpose. The results of such research are being made available as additional information only and do not constitute investment advice. They do not reflect the views of JPMorgan Chase Group. The value of investments and the income from them may fluctuate in accordance with market conditions and taxation agreements and investors may not get back the full amount invested. Both past performance and yield may not be a reliable guide to future performance. Changes in exchange rates may have an adverse effect on the value, price or income of the product or underlying overseas investments.
J. P. Morgan Asset Management makes no representation or warranty regarding the accuracy or completeness of the information herein. J.P. Morgan Asset Management is not an advisor to any person who receives information on any referenced transaction.
Investment is subject to documentation (Prospectus, Simplified Prospectus and Terms and Conditions), copies of which can be obtained free of charge from JPMorgan Asset Management Marketing Limited.
Issued in the UK by JPMorgan Asset Management Marketing Limited which is authorised and regulated by the Financial Services Authority. Registered in England No. 288553. Registered address: 125 London Wall, London EC2Y 5AJ.
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