Trending
Following the Federal Reserve’s recent commentary and the December jobs report, it appears as though the central bank will be more restrained when it comes to interest rate reductions in 2025 than previously hoped. The current prevailing wisdom is that the Fed will cut borrowing costs just once this year.
That’s subject to change, but it’s always prudent to err on the side of caution. So with that in mind, 2025 could be a tricky year in the bond market and that could imply that income will be a more prominent part of the return equation than rates. With the increased importance of income, advisors may want to consider the benefits of actively managed bond funds, including exchange traded funds, that emphasize income. Enter the JPMorgan Income ETF (JPIE) – an ETF that’s comparable to the JPMorgan Income Fund.
JPIE features a “pure fixed income approach seeking to deliver attractive, reliable income, using genuine diversification to reduce portfolio volatility,” according to the issuer.
JPIE Has the Goods
JPIE, which turned three years old last October, has $2.54 billion in assets under management making it something of a success story among active ETFs of comparable age. More important than that is the management team led by Andrew Norelli, Drew Headley and Tom Hauser who have an average of 29 years of industry experience.
“The fund’s approach grants the managers wide discretion to implement their best ideas, drawing insights from global macroeconomic trends and sector specialists across the firm. J.P. Morgan’s quarterly macro view guides broad portfolio positioning, while daily collaboration among managers, sector specialists, researchers, and traders informs most investment decisions,” notes Morningstar analyst Ken Noguchi. “The managers strive for diversification within higher-income areas, particularly securitized debt, which currently constitutes roughly two thirds of the portfolio.”
The research firm recently upgraded JPIE to gold from silver. Part of the reason for that upgrade is JPIE excelling in Morningstar’s “people pillar” category.
“Headley’s securitized credit expertise and Hauser’s below-high-yield focus give this team its edge. Each manager, however, is well-versed in most bond market sectors, enabling them to invest where they see the best value. J.P. Morgan’s deep and capable analyst team, one of the industry’s largest, supports the managers,” adds Noguchi.
Indeed, managers are always important when it comes to active funds and perhaps even more so with JPIE because the ETF aims to deliver to investors income that’s on par with high-yield bonds without the volatility associated with that corner of the bond market.
What Makes JPIE
JPIE has a deep bench comprised of 1,771 long positions and 10 short holdings, The ETF’s duration, as of Nov. 30, 2024, is just 2.34 years, making it not too sensitive to changes in interest rates – a potential plus should inflation prove sticky again this year.
About 46% of the portfolio is comprised of mortgage-backed securities (MBS) with asset-backed securities and junk bonds each commanding weights of 14.4%. On the yield front, JPIE is attractive as highlighted by a 30-day SEC yield of 5.80%. That can get investors in the door, but long-term performance, assuming it’s repeated, is a reason to stay.
“The strategy has delivered solid long-term absolute and risk-adjusted results. Since its July 2014 inception, the open-end fund’s R6 shares’ 3.7% annualized return through November 2024 outpaced the average multisector bond peer’s 3.2% and was better than three-quarters of rivals,” adds Morningstar’s Paul Olmsted. “The fund’s typical yield advantage versus peers helps propel long-term returns, but the strategy’s elastic positioning can lead to varied outcomes over shorter periods when riskier assets are out of favor.”