JPMorgan Launches New Active Bond Fund

JPMorgan announced the launch of its latest active bond ETF earlier this week, adopting a similar strategy and the same team from its more than 30-year-old Core Bond mutual fund. 

The JPMorgan Active Bond ETF (JBND) has strong connections to the $40 billion JPMorgan Core Bond (WOBDX) mutual fund, which launched in 1991.

According to Bryon Lake, global head of ETF Solutions at JPMorgan, JBND is not an ETF clone of the fund. But it’s fair to look at the fund to get an idea off JBND’s team and strategic focus. The “I” share class of the fund has returned 3% annually versus the Bloomberg U.S. Aggregate's, or the Agg's, 2.7% annual return over the 15 years ended June 30, 2023. 

Overweight in Securitized Bonds

JBND’s strategy includes a minimum 20% overweight of securitized bonds, such as mortgage-backed securities, compared with the Agg.

Lake said this sector has greater opportunities for active managers; because it has less analyst coverage and so it is a less well-known and less efficient market than higher traded sectors. High interest rates may also help the exchange-traded fund to outperform.

“When you have rates go down to zero, there’s not much you can do in that type of an environment,” Lake said in an interview. 

60/40 Strategy 

After market turmoil last year and with short-term rates so high, Lake said it’s tempting for investors to allocate to cash right now but that they should resist that impulse.  

“It feels really warm and cozy to have 5% return [from cash] right now, but you have a tremendous amount of reinvestment risk six, 12, 18 months from now.”  

As for where that cash belongs, Lake said investors shouldn’t write off the traditional portfolio mix of 60% stocks and 40% bonds. Although it had a historically bad year in 2022, he contends it can deliver over the coming decade. 

JPMorgan's "2023 Long-Term Capital Market Assumptions" report echoed that sentiment, saying that the 60/40 allocation can “once again form the bedrock for portfolios.” 

Contact Gabe Alpert at [email protected]