HEAD-TO-HEAD: JP Morgan versus Legg Mason

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Source: FE Fundinfo (cumulative returns in US dollars)

Performance

The JP Morgan fund has achieved 12.37% % total return over three years, better than its US dollar fixed income sector average by 3.46 percentage points. However, it has underperformed its benchmark Bloomberg Barclays US Aggregate index, which has posted a 15.96% cumulative return over the same period.

It’s annualised volatility of 4.28% is low, according to Poole, despite the portfolio’s exposure to asset-backed securities which typically fluctuate in value more than plain vanilla, high quality sovereign bonds.

Last year was especially good for the fund as many investors moved into safer, government bonds, and performance has been strong so far this year, despite the mid-March rout in most asset markets which saw “dislocations in the mortgage-backed securities sector,” said Poole.

Meanwhile, the Legg Mason fund also had a healthy 2019, but its performance in US dollar terms has suffered this year. Its base currency is Singapore dollars, so foreign exchange movements – that is a strong US dollar – has had a negative impact.

The fund has generated a three-year cumulative return of 9.15%, which is better than its global fixed income category average of 5.51% (data is unavailable for its composite benchmark), and it enjoyed a significant upturn in 2017 during a buoyant year for both fixed income and equity markets.

“However, the fund entered late 2018 and early 2019 with long duration positions, just when global investors were unnerved by a deterioration of Sino-US trade relations and as Brexit was reaching its end-game,” said Poole.

“Short-dated bonds rallied as investors sought safety, and longer-dated bonds underperformed,” he said.

The fund was caught out badly positioned, which is unfortunate for a product that advertises its defensive qualities.

“Nevertheless, it has done well during other periods of market drawdowns, and recent upgrades to risk management systems should alleviate future overexposure to interest rate risk,” said Poole.

Discrete annual performance %

 Source: FE Analytics (in US dollars). *31 Dec 2019 – 29 May 2020

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