JP Morgan Asset Management is making a bullish call on an underinvested market group: high-quality fixed income.
Priya Misra, portfolio manager at the firm, sees a once-in-a-generation opportunity for investors.
“You can actually take credit risk in the highest quality companies and still get (a) 6.5% (yield),” Misra told CNBC’s “ETF Edge” this week. “So you don’t have to go down on credit (quality).”
She suggested that the strategy is particularly well suited to investors concerned about too much exposure to artificial intelligence stocks.
“There is a huge exposure to AI,” Misra said. “What fixed income gives you is this diverse set of returns. It’s not just an AI trade or a tech trade. You have the Treasury trade. You have credit outside of AI.”
Misra co-manages the JPMorgan Core Plus Bond Fund ETF (JCPB). The fund manages nearly $16 billion in assets, with just over three-quarters of its holdings in debt securities rated BBB or higher, according to the company’s website as of Aug. 31.
“We actually increased some exposure to double B (and) single B because there has been a widening of high yield spreads,” she said. “We like investment grade. And now we’ve started in the last few days to increase duration as well, thinking maybe we’re nearing the end of this rate hike.”
The JPMorgan Core Plus Bond Fund ETF is down more than 5% year to date as of Friday’s close, according to FactSet.
“You have to look bond by bond and sort of sector by sector to see where the macroeconomic situation is, and you also have to go from the bottom up to make sure that companies are not overleveraged,” noted Misra, who is concerned about how higher rates could hurt the real estate market.
BondBloxx co-founder Joanna Gallegos also advises investors to take advantage of “historically attractive” yields in debt markets.
“You definitely want to consider incorporating corporate debt into your portfolio,” Gallegos said in the same interview. “It’s really in the investor’s best interest to start looking at the income generated by fixed income. This can offset the volatility in your portfolio.”
Part of his bullish argument: base rates are high and stable.
“The fundamentals of these companies are very strong and the economy continues to grow,” Gallegos added. “We really think that’s getting lost in the narrative around Treasury rates.”
His company BondBloxx is known for its fixed-income exchange-traded funds in sectors including Treasury, corporate, private credit and emerging markets.
One of its funds includes the BondBloxx Private Credit CLO ETF (PCMM). As of Friday’s close, it was down 0.6% year to date, according to FactSet.
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