JP Morgan Asset Management’s fixed income team is used to thinking big.
For a start, the team is made up of about 200 investment professionals at the coalface: managing portfolios, trading and researching what is, after all, a £70trn market.
Organised across broad fixed-income sectors – government bonds, corporate bonds, high-yield bonds, emerging market debt and foreign exchange – the team is headed by the grandly titled international chief investment officer of fixed income Nick Gartside.
A warm and gregarious character – going against the grain of the stereotypical bond fund manager – Gartside does not seem to be weighed down by his responsibilities.
This is particularly true at a time when fixed-income managers are under the cosh from investors concerned by perceived low returns and low yields from the asset class.
Controlling the downside
Not ones to narrow the focus in terms of the available universe, Gartside and his team run two funds, the Libor-benchmarked £1.1bn JPM Global Strategic Bond Fund (yield 1.2%), and the higher-risk £2.5bn Global Bond Opportunities Fund (yield 3.47%), which is measured against the Bloomberg Barclays Multiverse Index.
Gartside says: “Because we are taking on more risk in the Opportunities fund, that begs the question of what the benchmark should be. Cash is not right because when you’ve got a cash-plus benchmark you’re implying you will very actively control downside risk.
“The Multiverse index includes high-yield bonds, it includes emerging market bonds; it includes pretty much everything. So, we don’t invest the fund with reference to it, but it’s a way of defining the opportunity set.”
Exposure to high yield is a big differential between the funds. Where the Strategic vehicle has about 20% allocated to the asset class, the Global Bond Opportunities portfolio has double that exposure, most of which is in the US.
“High yield, again, remains for us a top pick, because one of the implications of recent US politics, where there’s been an increase in animal spirits, is there will likely be business-friendly policies in terms of cutting taxes,” says Gartside.
“That helps to underwrite credit risk. It’s a very good environment for corporations and an environment where, all things being equal, default rates go down. That’s the big risk on a high-yield bond, as you know you don’t get your cash back.
“There we think the opposite. Default rates go down and that’s not yet factored in.”