The team driving JPMorgan High Yield Bond needs more time to prove itself. The strategy retains its Morningstar Analyst Rating of Neutral across all but its priciest share class, which is rated Negative.
The team has undergone significant change since late 2019. Parent firm JPMorgan acquired two separate high-yield businesses, one in Cincinnati and the other in Indianapolis, in 2004; after letting them work in parallel, the firm moved to integrate these teams in September 2019. As part of those changes, Indianapolis-based Rob Cook (now the firm’s head of high yield), Thomas Hauser, and Jeffrey Lovell replaced three Cincinnati-based managers on this strategy, joining longtime manager Jim Shanahan. Shanahan, who has run this strategy since its 1998 inception, provides continuity, but his longtime co-skipper Bill Morgan retired in February 2020. A robust and streamlined analyst bench supports the managers, but a bevy of Cincinnati-based analysts and managers have departed since the merger. The remainder will either move to Indianapolis or work remotely, providing some uncertainty as to that group’s continuity.
The process this shifting group drives is sensible on paper but lacks a decisive advantage relative to high-yield bond Morningstar Category rivals. Each analyst focuses their fundamental analysis to sectors under their coverage, and the managers synthesize these bottom-up recommendations with firm-generated liquidity and diversification risk reports to position the portfolio relative to the Bloomberg Barclays U.S. High Yield 2% Issuer Cap Index benchmark. This framework has allowed to managers to take on significant risk at times, including cultivating significant stakes in leveraged loans and equity acquired through restructuring.
This flexibility hasn’t translated to noticeable outperformance relative to a distinct group of category rivals. Over the trailing 10 years ended June 2021, the Institutional share class posted a lackluster 5.6% annualized result, lagging 65% of its peers.