JPMorgan International Bond Opportunities ETF benefits from an experienced management team, the firm’s wider resources, and a flexible and nimble investment process.
In September 2020, JPMorgan Global Bond Opportunities ETF was renamed JPMorgan International Bond Opportunities ETF, reflecting the change in the investment universe from 40% ex US to 80% ex US. The benchmark changed from the Bloomberg Multiverse Index Hedged to USD to the Bloomberg Barclays Multiverse Index ex USA Hedged to USD. The investment process, total return objective, and 5%-10% volatility target remain unchanged.
The strategy aims to maximize total return within its volatility target and retains considerable flexibility to invest across a variety of sectors, such as high-yield and investment-grade corporates, emerging markets, and securitized debt.
Macro decisions are the dominant driver of the process. The comanagers and sector team heads debate the macro environment at quarterly meetings, which define the team’s top-down investment roadmap. During the weekly sector team meetings, fundamental, quantitative, and technical research inputs are generated for every sector, which help fine-tune the asset allocation. We have confidence in the team’s ability to proactively reduce risk and modify exposures to limit drawdowns in periods of market stress.
Global fixed-income CIO Bob Michele and international fixed-income CIO Iain Stealey comanage the strategy. But as part of the remit’s transition and in recognition of their contribution three comanagers were added in 2020: Lisa Coleman, head of global investment-grade corporate credit, who joined in 2008; Peter Aspbury, a high-yield portfolio manager who joined in 2010; and Diana Amoa, an emerging-markets portfolio manager who joined the firm in 2015 but left in April 2021. Overall, the strategy benefits from a well-resourced and experienced team.
The ETF has a short track record since the strategy’s transition in September 2020 but outperformed its peers and Morningstar Category index up to the end of March 2024. Its previous version outperformed peers from its inception in 2017 to the time of the transition in September 2020. For most of the time since inception, the large stake in high-yield debt has ranged between 35% and 65%. The bulk of high-yield exposure has stemmed from corporate credit and emerging-markets debt and has been beneficial in a generally benign market environment. The team has exercised sound judgment in reducing that stake when valuations appear less compelling and during periods of market turmoil.
More recently, the fund held up better than most peers during the sharp credit market selloff in first-quarter 2020 as the team reduced its high-yield and emerging-markets exposure, increased duration, and added value with tactical currency trades. In 2022 the ETF declined by 5.9% but outperformed its multisector bond category peers by 3.9% and its Bloomberg US Universal TR Index USD category benchmark by 7.1%. Credit exposures including corporate investment-grade and high yield, as well as emerging-markets debt, detracted as spreads widened. However, net short government bond duration throughout the year, mainly via US Treasuries but also European government bonds, was the main driver of outperformance. A hedging position in Russian credit default swaps also helped at the beginning of 2022. In 2023 the ETF returned 7.8% but underperformed its peers by 0.3% owing to its underweight exposure in riskier parts of the market such as high yield and emerging markets.