Build stronger fixed income portfolios Our framework for strategic diversification across market cycles PORTFOLIO INSIGHTS Source: J.P. Morgan Asset Management. Data as of 6/30/20. For illustrative purposes only. Past performance is not indicative of future returns. CHART 1: Barclays Capital Inc., DJ UBS, MSCI Inc., Standard & Poor’s. Indices used: U.S. stocks: S&P 500 Index; Core bonds: Bloomberg Barclays US Aggregate Bond Index; Treasuries: Bloomberg Barclays US Treasury Index; Municipal bonds: Bloomberg Barclays US 1-15 blend (1-17) Municipal Bond Index; High yield bonds: Bloomberg Barclays US High Yield Index; Emerging markets debt: Bloomberg Barclays US EMD Index. All correlation coefficients calculated based on monthly total return data for period 2/1/99–6/30/20. CHART 2: FactSet, Standard & Poor’s. Returns are based on price index only and do not include dividends. Intra-year drops refers to the largest market drops from a peak to a trough during the year. CHART 3: BLS, FactSet, Federal Reserve. Real 10-year Treasury yields are calculated as the daily Treasury yield less year-over-year core CPI inflation for that month except for the last month of the period shown, where real yields are calculated by subtracting the prior month’s year-over-year core inflation. Fixed income plays an important role in well-diversified portfolios; however, fixed income investors face three main challenges: • Generating enough income • Hedging against the effects of rate volatility • Combating the gradual erosion of purchasing power Our framework for fixed income diversification can help investors utilize fixed income to achieve critical objectives: generating income and reducing overall portfolio volatility. Yields are low Core bond yields have fallen significantly and some investors may need more income 20% 15% 10% 5% 0% -5% Nominal 10-year Treasury yield 0.66% Real 10-year Treasury yield -0.58% 1979 6/30/20 Emerging markets debt High yield bonds Municipal bonds Treasuries Core bonds U.S. stocks 1.00 -0.08 -0.07 -0.34 0.65 0.56 Correlation to U.S. stocks Core correlation benefits Over the long term, core bonds have low volatility and a negative correlation to stocks -38 23 30 13 0 13 11 19 29 -1 10 -6 -6 -16 -28 -49 -19 -10 -12 -11 -3 -20 -34 -6 -7 -7 2008 YTD 2020 Intra-year stock declines Calendar year stock returns Equity volatility continues Core bonds can reduce the overall volatility of a diversified portfolio Summer/Fall 2020 

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Build stronger fixed income portfolios.pdf

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