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Jpm organ

  1. 1. The future is Blurry, the future is Bonds.JPM Strategic Bond Fund.<br />October 2011<br />
  2. 2. Size isn’t necessarily everything!!<br />UK Total Debt as % of GDP<br />1<br />(%)<br />849% = total debt in March 2011<br />Source: Barclays Capital, March 2011<br />
  3. 3. Problem (1): Debt - Europe: awaking into reality<br />2<br />The EFSF as it stands is not large enough.<br />(assuming peripheral debt to GDP reduced to 60%)<br />A 'plan B' will be required.<br />(€bn)<br />Source: J.P. Morgan Asset Management, IMF as at 21 July 2011<br />Source: This information above is given for illustrative purposes.<br />
  4. 4. 3<br />Problem (1): Debt - AA+: the new AAA?<br />What should a AAA issuer look like?<br />Spending does have a limit!<br />Source:<br />Source IMF, data for 2016 is expected, April 2011<br />
  5. 5. Problem (2): Economic Growth = Bleak<br />As highlighted in our leading indicators.<br />Global growth is stagnating.<br />Future above trend growth<br />Future below trend growth<br />Source: J.P. Morgan Asset Management, Bloomberg, August 2011<br />Source: This information above is given for illustrative purposes<br />4<br />
  6. 6. Is the road map Japan?<br />Too much debt in an economy...<br />Leads to lower growth and government yields.<br />Debt to <br />GDP (%)<br />2011: US losses S&P’s AAA<br />1998: Japan losses Moody’s Aaa <br />Months<br />Source: J.P. Morgan Asset Management, IMF, data after 2010 is expected, April 2011<br />Source: Bloomberg, Japan Data starting 31st Dec 1987, Ger, FRA, UK and US Data starting 31st Dec 1997 <br />5<br />
  7. 7. QE: A panacea or a fallacy?<br />Central Bank Balance Sheets – Index to 2007<br />The qualitative economic impact of QE?<br />Impact <br />Phase<br />Adjustment Phase<br />Broad money<br />Nominal<br />Demand<br />Consumer<br />price level<br />Real asset process<br />Real GDP<br />Inflation<br />Time<br />Source: J.P. Morgan Asset Management, Bloomberg., August 2011, index to 2007<br />Source: Bank of England as at 30 September 2011<br />6<br />
  8. 8. 7<br />Strategies in governments<br />Invest with the best<br />Envious of Australia: an attractive real AAA<br />%<br />Source: Bloomberg, September 2011<br />Source: JPMorgan Asset Management, IMF, 2016 data is expected<br />
  9. 9. Corporate credit: being selective is important<br />Investment Grade security selection is <br />critical<br />High Yield: risk vs reward<br />%<br />%<br />bps<br />Source: Bank of America Merrill Lynch, JPMorgan, 26th August 2011 <br />Source: Barclays Capital. Data as of 9th September 2011.<br />8<br />
  10. 10. Emerging markets: take advantage of global opportunities<br />Future global growth will be driven by the emerging world<br />But not all markets are equal<br />%<br />ASIA<br />%<br />LATAM<br />Advanced<br />Source: Bloomberg. 13th September 2011.<br />Source: IMF, 5yr average GDP % growth estimates (2011-2016). Forecasts as of March 2011. <br />9<br />
  11. 11. Inflation-linked bonds: are they attractive?<br />Valuation: Fisher equation<br />UK 10-year breakeven inflation rates (%)<br />%<br />%<br />Source: J.P. Morgan Asset Management, Bloomberg, 5th September 2011.<br />Source: J.P. Morgan Asset Management, Bloomberg, 5th September 2011.<br />10<br />
  12. 12. JPM Strategic Bond Fund (OEIC): overview<br />Key features<br />Risk and return targets*<br /><ul><li>‘Best ideas’ actively managed global bond fund
  13. 13. Diversified opportunity set across global fixed income and currency markets.
  14. 14. Dynamic sector management, aiming to only take risk when compelling investment opportunities are identified
  15. 15. Return: 3% above cash
  16. 16. Duration: 0-9 years
  17. 17. Quality: Maximum 50% below Investment Grade
  18. 18. Currency: Mainly hedged to base currency (80%)</li></ul>There can be no assurance that the Fund will achieve its investment objective, the Target Return or any other objectives. The target return shown above is neither guaranteed by nor binding on the Manager. Please refer to the Fund Prospectus. * Risk and return targets shown gross of all expenses and investment management fees, they are the objective of the fund manager. Please read the Prospectus for more information about the investment objective and investment policy of the fund. ** Official benchmark: Merrill Lynch UK Broad Market Index (UK00).<br />11<br />
  19. 19. As at 30 September 2011<br />Performance JPM Strategic GBP Broad 3 Month<br /> Bond Fund Market Index GBP LIBOR<br />Since Inception* 23.24% 25.81% 1.92%<br />Past performance is not a guide to the future. Source: Bloomberg. Fund return shown net of all applicable expenses, fees and taxes for ‘JPM A – Net Acc’ class. Please refer to the fund’s prospectus for a description of the other available classes of shares, the performance of which will differ from that shown above. Fund and benchmark rebased to 100 as of fund inception. *Inception date: 6th May 2009. GBP Broad Market Index shown is the Merrill Lynch Sterling Broad Market Index (UK00). <br />12<br />JPM Strategic Bond Fund (OEIC): investment performance<br />
  20. 20. Sector allocation<br />Where is the portfolio currently invested?<br />Currency allocation<br />Source: J.P. Morgan Asset Management; Data as of 3rd Oct 2011. Note: Duration exposure is achieved through exchanged traded bond futures. Allocations are subject to change at the discretion of the Portfolio Manager without notice.<br />13<br />
  21. 21. Debt overhang Interest rates to remain low<br />Japan is the roadmap Fixed Income returns 'surprise'<br />Anaemic recovery Hunting for yield<br />Global Opportunities HY, Australia, Local EM, EMFX<br />Globally Integrated. Research Driven: JPM Strategic Bond Fund<br />14<br />What to expect?<br />
  22. 22. Appendix<br />15<br />
  23. 23. Macro Scenario Probabilities & Investment Expectations: 4Q11<br />Expansion<br />Contraction<br /><ul><li>Double dip (20%)
  24. 24. GDP growth < 0%; Inflation ~0%
  25. 25. The efforts of the Central Banks and politicians are unable to prevent global retrenchment and deleveraging
  26. 26. G4 government bond yields fall and the USD rallies on flight to quality
  27. 27. The recession curtails corporate earnings; credit spreads widen
  28. 28. Banks and the overcrowded EMD sectors correct the most
  29. 29. Crisis (10%)
  30. 30. GDP < -2%
  31. 31. Gold, USD and Treasuries rise to record levels
  32. 32. The failure of policy makers ( US, Europe, China) to enact effective measures leads to disorderly markets reminiscent of 4Q2008
  33. 33. Liquidity vanishes, lowest rated issuers fall sharply in price</li></ul>Base Case (55%): Trend-like recovery continues into 2012<br />GDP growth ~2.5% ; Inflation ~ 2%<br />Central Banks remain accommodative through 2012, but output gap does not close<br />Politicians in Europe and the US take steps to reduce government deficits and shore up banking systems<br />Government bond yields drift lower as the specter of Central Bank tightening is removed and plan sponsors continue de-risking<br />High quality corporates benefit the most based on continued deleveraging, a stable economy and the recent widening in yield spreads<br />Emerging markets struggle as the markets adapt to lower than hoped for global growth.<br />The US dollar rises<br /><ul><li>Close the output gap (5%)
  34. 34. GDP growth and inflation > 3%
  35. 35. Domestic demand in emerging economies creates export growth in the developed economies
  36. 36. The policy intervention of the last several years stimulates corporate investment and job creation, leading to higher spending
  37. 37. Government bond yields rise as Central Banks discuss the withdrawal of liquidity from the system
  38. 38. HY, EMD and EMFX rally from the cheaper levels they reached over the summer</li></ul>.<br /><ul><li>Stagflation (10%)
  39. 39. Inflation > GDP growth by 3%
  40. 40. The persistence of inflation in the US and UK, coincident with stagnant GDP, suggests that this is the current environment
  41. 41. Cash and commodities outperform stocks and bonds</li></ul>Opinions and statements of financial market trends that are based on current market conditions constitute our judgment and are subject to change without notice.<br />16<br />
  42. 42. Duration breakdown<br />Source: J.P. Morgan Asset Management. <br />17<br />17<br />
  43. 43. Sector allocations reflect view of market opportunities<br />Corporate High Yield<br />Corporate Investment Grade<br />Mortgage-backed Securities<br />EMD (ZAR, ILS, BRL, TRY, KRW, IDR, MXN, PHP, MYR)<br />Source: J.P. Morgan Asset Management. For illustrative purposes only. <br />18<br />18<br />
  44. 44. Investment process centers on Research-Driven Sector Allocation<br />Regardless of sector or where they’re located, investors perform proprietary fundamental, quantitative, and technical analysis. <br />Security selection is performed by sector specialists who are experts in their specialty, not generalists<br />Portfolio managers are responsible for ensuring that our best ideas are implemented appropriately, according to each client’s objectives<br />Investors around the globe are the foundation of our process<br />Formal meetings ensure that we consider all opinions when we rank order investment strategies according to conviction<br />The above information is shown for illustrative purposes only. <br />19<br />
  45. 45. Budgeting<br /><ul><li>Opportunity set
  46. 46. Tracking error contribution
  47. 47. Correlation of strategies </li></ul>Portfolio Risk Management<br />Assessment<br /><ul><li>Return attribution
  48. 48. Ex-post Tracking Error
  49. 49. Review Performance
  50. 50. Investment Director review</li></ul>Implementation<br /><ul><li>PMs manage positions within risk targets
  51. 51. Market conditions and liquidity
  52. 52. Conviction level and time horizon
  53. 53. Drawdown and stop-loss triggers</li></ul>Monitoring<br /><ul><li>Ex-ante tracking error, VAR and stress testing
  54. 54. Pre and post-trade compliance
  55. 55. Independent risk and compliance departments </li></ul>The above information is shown for illustrative purposes only. The risk management process includes an effort to monitor and manage risk, but does not imply low risk.<br />20<br />Rigorous risk management ensures appropriate risk taking<br />
  56. 56. Portfolio Construction Process<br />Global Team forecast returns based on sector team analysis, quarterly and weekly strategy meetings<br />Generate Sector Heat Map to highlight whether strategies should be over weighted or under weighted and the size of the positions<br />Size strategies taking into account client guidelines, alpha targets and tracking error targets<br />Upload positions into risk tool to evaluate impact on portfolio<br />The above information is shown for illustrative purposes only. <br />21<br />
  57. 57. Risk allocation decisions<br />High Capital Risk Allocation<br />Moderate Capital Risk Allocation<br />Limited/No Capital Risk Allocation<br />JPMAM International Fixed Income Heat Map as at 11th August2011, The above information is shown for illustrative purposes only. <br />22<br />Portfolio Risk Allocation<br />Moderate Capital Risk Allocation<br />High Capital Risk Allocation<br />
  58. 58. 23<br />Proprietary Tracking Error tool to optimize portfolio positions<br /><ul><li>We use proprietary portfolio TE budget tool to optimally position the portfolio in line with our investment outlook and portfolio targets</li></ul>The above information is shown for illustrative purposes only. <br />
  59. 59. J.P. Morgan Asset Management<br />24<br />For professional financial advisers only – not for use by or distribution to retail investors.<br />The information in this document is based on our understanding of law and regulation at the time of print and is subject to change. The value of investments and the income from them may fall as well as rise and investors may not get back the full amount invested. Past performance is not a guide to the future. <br />Please note that bond funds may not behave like direct investments in the underlying bonds themselves. By investing in bond funds the certainty of a fixed income for a fixed period with a fixed return of capital are lost. Investments in smaller companies may involve a higher degree of risk as small cap markets tend to be much more volatile than their larger capitalisation counterparts. Investments may be concentrated in any one country, sector or issuer. The fund may have a significant exposure to high yield bonds, emerging market bonds or non investment grade or unrated bonds at any time. Non-investment grade bonds may increase the risk to capital. Derivatives may be used to achieve fund objectives and allocations may vary significantly over time. The yield or the capital value of the fund (or both) can fluctuate and investors may not get back their original investment. Exchange rates may cause the value of underlying overseas investments to go down or up. Investments in emerging markets may be more volatile than other markets and the risk to capital is therefore greater. Also, the economic and political situations may be more volatile than in established economies and these may adversely influence the value of investments made. The Fund may have a significant exposure to asset and mortgage backed securities (ABS and MBS). Owing to the nature of some ABS and MBS, the exact timing and size of cashflows paid by the securities may not be fully assured.<br />This presentation does not contain sufficient information to support an investment decision and investors should ensure that they obtain all available relevant information before making any investment. A copy of the Fund prospectus and simplified prospectus are available free of charge from JPMorgan Asset Management Marketing Limited.Issued by JPMorgan Asset Management Marketing Limited which is authorised and regulated by the Financial Services Authority. Investment is subject to documentation (Prospectus, Simplified Prospectus and Terms and Conditions), copies of which can be obtained free of charge from JPMorgan Asset Management Marketing Limited. Registered in England No. 288553, 125 London Wall, London EC2Y 5AJ.<br />