As many take the pulse of the current market conditions, ETF investors may want to consider an ultra-short duration bond strategy to help protect their portfolios.
On the recent webcast, Risk Management: Ultra-Short Duration Bond Strategies, Samantha Azzarello, Vice President, Global Market Strategist at J.P. Morgan Asset Management, painted the picture of the current market landscape, outing positive economic figures such as the quarter-over-quarter growth of 3.4% for 3Q2018, rising business fixed investment, an unemployment rate at below half-century averages, rising wage growth, steady inflation and growing market complacency as reflected by a low CBOE Volatility Index reading.
However, the prolonged economic growth can not last forever, and as we have recently witnessed, market volatility can greatly affect an investment portfolio, especially after a prolonged bull run. Azzarello pointed out that on average, an equity market may experience a 14% drawdown 12-months after reaching its peak.
Alternatively, Alexander Nobile, Vice President, Investment Specialist for J.P. Morgan Asset Management, argued that investors can look to strategies like the JPMorgan Ultra-Short Income ETF (JPST) to better manage risks, noting that “short-term fixed income is a primary focus for J.P. Morgan Asset Management.”
The JPMorgan Ultra-Short Income ETF is an actively managed fund backed by the expertise of J.P. Morgan’s Global Liquidity business, with 30 years of demonstrated results across market cycles.
Nobile believed that JPST can act as a core complement strategy within the so-called JPM Fixed Income Triangle, which includes extended sectors, a core complement and core holdings. Something like JPST would help lower volatility or hedge downside risk and reduce portfolio duration. The strategy’s primary opportunity moves money out the curve to earn extra yield while its secondary opportunity moves money down the curve in the face of rising rates and a flat yield curve environment.
JPST provides “current income with a focus on risk management,” Nobile said.
JPST can also act as an attractive money market alternative. The fund exhibits an ultra-short duration of 0.45 years with a 2.90% yield, or a yield that is 39 basis points higher than the JPM Prime Money Market Fund. Additionally, investors are receiving an attractive, competitive yield at a lower risk than traditional bond funds. The benchmark Bloomberg Barclays U.S. Aggregate Bond Index shows a 3.15% and a 6.17 year duration, so JPST captures 92% of the index’s yield with only 7% of the duration.
Financial advisors who are interested in learning more about short-duration bond strategies can watch the webcast here on demand.