JPM Global High Yield Bond Fund

FOR PROFESSIONAL CLIENTS ONLY – NOT FOR RETAIL USE OR DISTRIBUTION
JPM Global High Yield Bond Fund
Monthly update | As at 31 May 2015
Fund update
• The fund performed in line with its benchmark over the month.
• At the end of May, relative to the BofA Merrill Lynch US High Yield Master II Constrained Index,
the fund was overweight in technology, healthcare and chemicals based on our view of the
relative value opportunities within those sectors. • We are currently underweight in the banking/financials, metals & mining and electric utilities
sectors. • We have a preference for the deeper and more liquid US dollar-denominated market. Market update
• The high yield market posted modest performance in May, returning 0.29% (as measured by the
BAML US High Yield Master II Constrained Index) as spreads absorbed the modest upward move
in rates.
• The high yield energy sector continued to outperform the broader market, returning 0.60%.
However, there was significant differentiation of performance by ratings categories within the
energy sector as double-B energy returned 1.13%, while CCC energy fell 2.25%. • New issue supply slowed to USD 35 billion, while year-to-date totals USD 168.3 billion. Demand
dynamics weakened in the month of May as fund flows turned negative for the month, at USD
–0.9 billion. The asset class has total inflows of approximately USD 8.1 billion year-to-date.
PERFORMANCE UPDATE
%
1M
3M
6M
YTD
1Y
3Y
5Y
JPM Global High Yield Bond Fund A – net
(acc) GBP
0.29
0.69
1.59
3.17
0.59
5.97
7.07
BofA Merrill Lynch US High Yield Master II
Constrained Index hedged to GBP*
0.32
0.97
2.57
4.09
1.96
8.20
8.97
Excess return (geometric)
-0.02
-0.27
-0.95
-0.89
-1.34
-2.06
-1.74
Source: J.P. Morgan Asset Management. Fund performance is shown based on the NAV of the sub-fund which already includes
Annual Management Fees, Operating and Administrative Expenses. Past performance is not an indication of future performance.
Performance over 1 year is annualised. Share class inception date is 1 September 1999.
*The benchmark is BoFA Merrill Lynch US High Yield Master II Constrained Index hedged to GBP since 1 January 2010. From 30
June 2005 to 31 December 2009 the benchmark was BoFA Merrill Lynch High Yield US BB-B Constrained Hedged to GBP.
Relative to the index, the fund was
overweight in technology, healthcare and
chemicals, and underweight in banking/
financials, metals & mining and electric
utilities.
RISK PROFILE
• Bond funds may not behave like direct investments in the
underlying Bonds themselves. By investing in Bond funds, the
certainty of receiving a regular fixed amount of income for a
defined period of time with the prospect of a future known
return of capital is lost.
• The value of Bonds and other Debt Securities may change
significantly depending on market, economic and interest rate
conditions as well as the creditworthiness of the issuer. Issuers
of Bonds and other Debt Securities may fail to meet payment
obligations (default) or the credit rating of Bonds and other
Debt Securities may be downgraded. These risks are typically
increased for Below Investment Grade and certain Unrated
securities, which may also be subject to higher volatility and
be more difficult to sell than Investment Grade securities.
• Bonds and other Debt Securities with a lower credit rating may
have a higher risk of defaulting which may in turn have an
adverse effect on the performance of Funds which invest in them.
• This Fund charges the annual fee of the Authorised Corporate
Director (ACD) against capital, which will increase the
amount of income available for distribution to Shareholders,
but may constrain capital growth. It may also have tax
implications for certain investors.
• The capital growth of an investment in a monthly Share Class
may be constrained when compared to the equivalent
quarterly Share Class of the same Fund. This is a result of
quarterly Share Classes effectively investing more in the
Fund than monthly Share Classes due to the less frequent
payment of income.
• Monthly Share Classes may receive less income than
equivalent quarterly Share Classes of the same Fund. This is
a result of the monthly Share Classes effectively investing
less in the Fund due to the more frequent payment of
income, which means that they will receive a smaller
proportion of any income received by the Fund during any
given quarterly period.
• Bond funds will normally distribute a combination of Coupon
and the expected discount/premium on the securities.
Therefore, a Fund’s distribution will comprise income
received and an element of projected capital gains or losses.
This could result in an element of capital gain being taxed as
income in the hands of an investor.
• To the extent that any underlying assets of the Fund are
denominated in a currency other than Sterling and are not
hedged back to Sterling, movements in currency exchange rates
can adversely affect the return of your investment. The currency
hedging that may be used to minimise the effect of currency
fluctuations may not always be successful.
• The Fund may invest in Structured Products which will
involve additional risks including the movements in the value
of the underlying asset and the risk of the issuer of the
Structured Product becoming insolvent.
• The Fund may invest in Credit Linked Notes which involve the
risk of the underlying credit instrument decreasing in value
or defaulting and the risk of the issuer of the Credit Linked
Note becoming insolvent.
INVESTMENT OBJECTIVE
To provide a high return from a diversified
portfolio of Bond and other Debt Securities.
FOR PROFESSIONAL CLIENTS ONLY – NOT FOR RETAIL USE OR DISTRIBUTION
JPM Global High Yield Bond Fund
Outlook & positioning update
FUND STATISTICS
• Despite mixed US economic activity in early 2015, corporate
earnings should remain supportive of high yield fundamentals. While
European economic growth has recently shown modest improvement,
sluggish growth outside the US could continue to hamper risk asset
performance.
• Default rates are forecast to come off historic lows to reach 1.5%—2.0%
through 2015. We expect a prolonged period of subdued energy
commodity prices, but security prices reflect a more rapid rise.
However, for most of the high yield market, lower oil prices should
support healthy fundamentals by benefiting either end demand or cost
inputs.
Fund
Benchmark
Spread duration (yrs)
3.47
3.94
Average coupon (%)
6.87
6.79
Yield to worst* (%)
5.78
6.02
Average spread (bps)
460
467
Credit quality
BB-
BB-
AUM (USD)
256 million
AUM (GBP)
168 million
Source: J.P. Morgan Asset Management. Data as at 31 May 2015. *Yield stated is the last distribution as at 31 May 2015. It is the anticipated yield as determined by
the investment manager based on a sum total calculation of yields on underlying funds held in
portfolio and in current market conditions. It is not guaranteed and may change over time. It is
not an investment objective or policy of the fund. For more information on the fund including
investment objective, policy, risks, charges and available share classes please refer to the latest
Prospectus.
• New issue activity should remain robust, led by refinancing. However,
we expect merger-and-acquisition activity and general corporate
purposes financings to continue to increase.
• As central bank policies develop—and if global growth concerns
continue—ongoing episodes of volatility will widen the dispersion of
returns among issuers and sectors. Technical pressures from retail
fund flows could also continue to create spread and performance
volatility. Excess returns should be strong in 2015.
• Our base case scenario is for high yield to return 5%—7% as coupon
return, plus modest spread tightening, is offset by default expectations
and the eventual rate rise. Our current portfolio positioning and our
fundamental research, bottom-up-orientated style should allow us to
take advantage of market opportunities.
37.7
47.2
32.0
10.9
Benchmark
>BB
BB
B
CCC
CC and below
0.0
0.7
0
0.2
2.1
5
11.0
10
11.4
15
9.1
20
5.8
0.0
2.9
25
Cash
3.1
1.1
Utility
1.4
1.7
Transportation
Other Industrial
Financial Institutions
2.0
1.7
30
3.7
5.2
Basic Industry
Capital Goods
Fund
35
7.7
8.7
7.9
9.5
Technology
Energy
Consumer Cyclical
Consumer Noncyclical
5
Communications
50
40
5.6
10
0
Benchmark
45
11.7
14.0
15
15.2
15.5
17.4
21.2
12.9
20
Fund
18.4
25
QUALITY ALLOCATION
% TOTAL MARKET VALUE
42.7
PORTFOLIO SECTOR ALLOCATION
% TOTAL MARKET VALUE
NR
Source: J.P. Morgan Asset Management. Data as at 31 May 2015. The Fund is an actively managed portfolio; holdings, sector weights, allocations and leverage, as applicable are subject to
change at the discretion of the Investment Manager without notice. Quality breakdown given is the lower of S&P, Fitch and Moody’s.
NEXT STEPS
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It should be noted that the value of investments and the income from them may fluctuate in accordance with market conditions and taxation agreements and investors may not get back the full amount invested. Changes in exchange
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