JPMorgan Total Return R5 JMTRX

JPMorgan Total Return’s contrarian leader, Bill Eigen, and his small Boston-based team aim to apply an unconstrained framework to this core-plus bond offering. Despite the strategy’s large toolbox, Eigen’s portfolio calls have not separated it from the pack. It receives a Morningstar Analyst Rating of Neutral across its cheapest share classes and Negative for its most expensive share class.

Bill Eigen and his team typically operate independently of the firm’s broader fixed-income complex despite the vast resources that it offers. Eigen has led his small team in the management of unconstrained mandates at JP Morgan since 2008. JPMorgan Total Return adopts the characteristics of a core bond strategy through the lens of an unconstrained manager and aims to manage risk exposures based on the macro views of Eigen. While the team has not experienced turnover over the past couple of years, prior roster churn and its thinly resourced cohort (seven members as of December 2021) remain a concern given the strategy’s wide-ranging, flexible mandate, which has featured allocations to high-yield bonds, non-agency mortgage-backed securities, credit default swaps and other forms of esoteric instruments.

Eigen’s goal here is to stick close to the Bloomberg U.S. Aggregate Bond Index during risk-off periods and diversify from (and outperform) it during risk-on periods, but also play the role of liquidity provider during volatile periods. In its early years, the strategy often leaned farther away from its index and into opportunistic, credit-intensive bonds, giving it an adventurous credit profile relative to its intermediate core-plus bond Morningstar Category peers. It has dialed back these investments in recent years in favor of more core-oriented securities, including investment-grade corporates and agency mortgages. Historically, Eigen has sought to limit interest-rate exposure by keeping duration shorter than that of the benchmark.

This approach has produced mixed results over the long term. The 3.2% annualized return of its Institutional share class over the trailing 10 years ended January 2022 beat its bogy’s 2.6% result but fell short of its typical rival.

The team’s flexible mandate has not demonstrated consistency in taking advantage of its opportunistic toolbox and the firm’s broader resources to drive alpha, supporting an Average Process Pillar rating.

Depending on the team’s macro views, Bill Eigen strives to add value through opportunistic allocations to alternative and extended sectors of the fixed income market. Ideas are typically generated though organic conversation amongst the team with respect to themes less correlated to traditional core fixed income, but final portfolio decisions fall to Eigen. The team keeps the strategy closer to the risk profile of the Bloomberg U.S. Aggregate Bond Index benchmark during risk-off periods but is willing to dive into more opportunistic sectors during risk-on periods. In the latter mode, Eigen and his cohort have the flexibility to invest generously in extended sectors such as non-investment grade credit, non-agency mortgage-backed securities, or dip into alternative trades within macro themes or long/short credit. The strategy always shies away from U.S. Treasuries, preferring higher-yielding exposures in investment-grade credit or agency MBS. While there is a wide duration band, ranging from 2.5 years longer or shorter than the index, it typically is managed more closely to its benchmark.

Though the strategy’s limits are wide, the team has avoided many of them in practice more recently. The team has also dabbled in smaller stakes in niche markets over the portfolio’s lifetime, including credit risk transfer securities, insurance-linked bonds, and long-short relative value trades using credit derivatives like CDX or ABX.

The strategy continues to exhibit patience with delving into risker sectors that drive excess returns for this fund and as a result, has missed some compelling opportunities recently, such as high-yield credit’s post-coronavirus sell-off rebound. Instead, it is positioned defensively, more so than at any time in the history of the fund. Bill Eigen and his team feel that tight valuations in credit markets don’t reflect an attractive risk-return tradeoff but continue to find limited opportunities in non-agency MBS and relative value credit trades. As such, the team maintains a higher allocation to high-quality core bonds as liquidity until they feel the time is right to scoop up edgier credits.

Over the past year, its exposure to investment-grade credit topped out at over 50% of the strategy while agency MBS was largely unchanged and ended 2021 at 30%. Eigen avoids low-yielding U.S. Treasuries, which are typically less than 10% of assets. The portfolio’s high-yield corporate allocation continued to shrink to less than 2%, its lowest level in over a decade. The strategy posted its longest ever duration (6.4 years) as of December 2021, longer than that of its typical rival (6.2 years) but shorter than its index (6.8 years).

The strategy’s dedicated Boston-based team is slim relative to its broad mandate, supporting an Average People Pillar rating.

Bill Eigen is the head of the absolute return and opportunistic fixed-income team at JPMorgan Asset Management, and he is the main architect of this wide-ranging strategy. Prior to joining the firm in 2008, he led Highbridge Capital Management's fixed income group and spent 12 years at Fidelity Investments where he comanaged several multisector portfolios, including Fidelity Strategic Income FSICX, which outpaced its median distinct peer during his tenure. He is also the lead portfolio manager for the JP Morgan Strategic Income Opportunities Fund JSOSX.

His supporting team, though nominally bolstered by the broader firm’s considerable fixed income complex, is small for this strategy’s broad mandate and has been marred by turnover. The crew, which includes two supporting portfolio managers, a macro strategist, one assistant trader, and two analysts, looks to Eigen for guidance on macro-driven positioning. Eigen has not shied away from hiring and subsequently dropping sector specialists where he believes there are (or aren’t) attractive valuations in certain market segments. The departure of two real estate focused managers in 2017 coincided with the strategy de-emphasizing its commercial MBS position; further turnover includes the departure of two credit specialists in 2018 and the replacement of the macro strategist in 2019. However, the team has been stable over the past couple of years.

A well-resourced, thoughtful, and disciplined steward of client assets, JPMorgan Asset Management maintains an Above Average Parent rating.

As of 2022, this investment stalwart manages more than USD 2.5 trillion in AUM. Composed of various cohorts globally and a diverse set of asset classes, the firm has more tightly integrated its capabilities in recent years, notably through the development of proprietary analytical and risk systems. Investment teams are robustly staffed and helmed by seasoned contributors. The firm’s strategies tend to produce reliable portfolios, and several flagship offerings are Morningstar Medalists. Manager incentives align with fundholders'; compensation reflects longer-term performance factors, and portfolio managers invest in the firm’s strategies as part of their compensation plans.

The firm’s funds tend to be well-priced, but they aren’t as competitive as many highly regarded peers of similar scale. Recent product launches include thematic and single-country strategies, both of which carry the potential for volatile performance and flows, along with misuse by investors. The firm remains intrepid when it comes to developing an environmental, social, and governance-focused framework and continues to move into other areas such as direct indexing through its 55iP acquisition and China through its joint venture, but these complicated initiatives take time to assess any real and lasting effect.

The strategy strives to offer lower volatility than its Aggregate Index benchmark while delivering alpha by tapping its wide toolbox. This strategy’s bias to corporate credit and agency MBS over much of its life boosted returns during periods friendly to credit risk; however, the latest 10-year period ending January 2022 for the Institutional share class generated a 3.2% annualized return that only beat 34% of distinct intermediate core-plus bond Morningstar Category peers, outpacing its benchmark, but with slightly higher volatility. Bill Eigen’s recent dialing back of credit risk has muted earlier outsize returns, and the strategy only kept pace with its bogy but lagged 84% of peers over the three years ended January 2022. Despite the flexibility to enter riskier parts of the fixed income market, Eigen has otherwise opted to sit on the sidelines when rivals added to risk at relatively attractive valuations. Following the risk-off period in early 2020, Eigen avoided high-yield at relatively wide spreads and instead increased the strategy’s allocation to investment-grade names.

Historically, this strategy’s performance tended to rise and fall alongside the fortunes of corporate credit. It lagged most of its rivals both during the June 2015-February 2016 commodity-related high-yield sell-off and during the fourth-quarter 2018 broad market sell-off. Its defensive risk profile and dwindling high-yield stake, however, protected it when markets sold off sharply during the 2020 coronavirus-driven sell-off. Its 4.8% loss from Feb. 20 through March 23, 2020, was less severe than two thirds of its rivals, but it still only delivered bottom quartile performance over the full calendar year.

It’s critical to evaluate expenses, as they come directly out of returns. The share class on this report levies a fee that ranks in its Morningstar category’s second-cheapest quintile. Even so, based on our assessment of the fund’s People, Process and Parent pillars in the context of these fees, we don’t think this share class will be able to deliver positive alpha relative to the category benchmark index, explaining its Morningstar Analyst Rating of Neutral.