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Active bond ETFs shine as growth slows and inflation recedes

Financial Newswire Contributor8 February 2024

If there’s one thing market participants and Federal Reserve (Fed) officials can agree on, it is the expected direction of interest rates in 2024. While both parties expect interest rates to head lower, disagreements remain on the timing and magnitude of potential rate cuts this year. Based on December’s dot plot, Fed policymakers expect interest rates to stay elevated for longer, penciling in three 25-basis points rate cuts in 2024. Meanwhile, the broader market is discounting an earlier and more aggressive rate cut schedule.

The combination of slowing growth, enduring disinflation trends and elevated interest rates suggests that the risks to monetary policy are asymmetric. In the pursuit of a soft landing, policymakers appear more inclined to cut rates in the face of growth challenges as opposed to hiking rates further to quell inflation, which could tip the economy into an outright recession. As such, it is very likely that policy rates have peaked. Nevertheless, the path to rate cuts remains uncertain, and much will depend on the lagged and cumulative effects of restrictive monetary policy on growth, the labour market and inflation.

As it stands, the macro backdrop remains constructive for fixed income. From the outset, yields typically fall after interest rates peak and this has historically coincided with meaningful capital gains for bonds – in particular, duration1. The shift in focus from high inflation to growth risks at this stage of the economic cycle could lead to normalising stock-bond correlations, allowing the traditional diversification properties of duration to finally reassert itself.

Moreover, with yields across a wide array of fixed income sectors hovering near decade highs, it may be time to lock in elevated yields as central banks approach the end of their hiking cycle. Higher starting yields tend to be a good indicator of forward returns and present an income buffer to cushion against potential capital losses should interest rates rise or credit spreads widen.

Still, in view of a softening growth backdrop, bottom-up credit selection will remain critical to ensure judicious exposure to high quality assets that could present attractive risk-adjusted yield. Elevated volatility in interest rate markets also underscore the importance of active duration management when investing in fixed income.

Depending on one’s investment objectives and risk preferences2, there is a wide variety of active bond ETFs that can help investors express a broadly constructive view on fixed income while still managing the risks.

The JPMorgan Global Bond ETF (JPGB)3, for instance, primarily seeks out opportunities in investment grade (IG) bond sectors across the globe, including government bonds as well as IG and structured credit. Access to a globally diversified, high quality fixed income portfolio can be useful to manage risks amid an uncertain macro backdrop.

Other active bond ETFs can leverage a broader opportunity set. The JPMorgan Income ETF (JPIE)4  employs a flexible and unconstrained approach to seek out income opportunities in both traditional and extended bond sectors while seeking to actively manage durations risks. This has helped the strategy achieve relatively attractive yield with lower volatility5.


Actively pursuing stronger bond outcomes

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1 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.

2 Investments involve risks. Not all investment ideas referenced are suitable for all investors. Exact allocation of portfolio depends on each individual’s circumstance and market conditions. Please seek financial advice or make independent evaluation before investing.

3 JPMorgan Global Bond ETF (JPGB) is the marketing name of the JPMorgan Global Bond Active ETF (Managed Fund).

4 JPMorgan Income ETF (JPIE) is the marketing name of the JPMorgan Income Active ETF (Managed Fund) (Hedged).

5 Past performance is not a guide to current and future performance.


Provided for information only to illustrate macro trends and JPMAM’s overall income investing capabilities.   The information is based on market conditions as of date of publication, should not be construed as offer, research, investment recommendation. ETFs have fees that reduce their performance, indexes do not. The market price is generally determined using the official closing price of the Fund. Each individual security is calculated as a percentage of the net assets. Returns, income or dividends are not guaranteed. The manager seeks to achieve its stated objectives, there is no guarantee they will be met. Please refer to offering documents for details on distribution policy. Forecasts and estimates may or may not come to pass.

JPMorgan Asset Management (Australia) Limited ABN 55 143 832 080, AFSL No. 376919

All investments contain risk and may lose value. The information provided on this article is general in nature and has been prepared, without taking into account your objectives, financial situation or needs and does not constitute personal financial advice. Before making any decision, it is important for investors to consider the appropriateness of the information and seek appropriate legal, tax, and other professional advice. 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 please refer to the relevant Product Disclosure Statement 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


Financial Newswire Contributor

Financial Newswire Contributor

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