JPMorgan Mortgage-Backed Securities’ experienced securitized managers, disciplined process, and strong decisions make it a compelling option for investors.
Firm veterans Rick Figuly, Andy Melchiorre, and Michael Sais have used their mortgage-backed securities expertise to generate impressive results. Their bottom-up efforts give them an edge versus most rivals. Sais has run this fund since 2005, but Figuly (2015), the head of J.P. Morgan’s value-driven core bond team, and MBS specialist Andrew Melchiorre (2019) oversee the day-to-day management. It’s very much a team effort, though, with the managers’ fundamental research efforts. They also draw on additional MBS specialists and a growing eight-person securitized analyst group for ideas and ongoing monitoring.
The strategy’s heavy MBS stakes differentiate it from intermediate core bond peers who typically manage to the Bloomberg US Aggregate Bond Index, which features a mix of Treasuries, investment-grade corporates, and agency MBS. The portfolio consists of agency residential and commercial MBS, typically accounting for 65%-80% of assets. This sets it apart from the typical peer, which has historically ranged between 25% and 30% for similar bonds.
J.P. Morgan's quarterly investment committee shapes the fund’s macro positioning. However, most of the work takes place in weekly sector meetings and daily interactions to inform portfolio construction. These value-driven managers employ rigorous fundamental analysis to evaluate various agency and nonagency MBS structures that meet their stringent standards, which identify bonds with favorable prepayment characteristics and good relative value.
The strategy’s unique contours, including its absence of corporate bonds, can cause it to lag most rivals in periods of corporate bond stress, but its high-quality, mortgage-centric holdings give it a boost when credit is out of favor. This resiliency, as well as strong security selection, have paid off for investors. Over the trailing 10 years, the I shares’ 2.1% annualized return through August 2024 beat its distinct intermediate core bond rival’s 1.7% and the benchmark’s 1.6%. This top-decile result was even better when adjusting for volatility.