Investment Strategy

Dynamic income funds: Adapting to a changing world

Fixed income is more than portfolio ballast in a storm: It's also one of our highest conviction ideas. Amid tariff uncertainty, periodic market turmoil and questions about economic fundamentals, finding sources of portfolio resilience is critical. Today, fixed income yields are attractive, offering the potential for that income cushion and diversification. In various market conditions, bonds may provide upside to your portfolio.

Of all the vehicles for adding fixed income, our preferred choice is the “go-anywhere” income fund—an instrument whose active managers scour the globe for opportunities across geographies, sectors and types of bonds, and can dynamically adjust to market conditions.

Income funds are also for those seeking portfolio resilience, at a time when bond markets have been roiled, particularly by U.S. market dynamics that resemble those typically seen in emerging markets: a weaker currency, steeper yield curve and relatively high risk premium. This new and evolving landscape may prompt, or accelerate, a shift towards portfolio diversification, which make income funds particularly attractive to build resilience.

Portfolio resilience: Helping you achieve long-term goals

We’re talking about high-quality income funds—designed to give portfolios a solid foundation of reliable income and relatively low volatility. Their income stream, at today’s near-decade-high yields, combined with some duration may potentially dampen the impact of market fluctuations in equities.

Their income comes from an array of bonds that are designed to complement each other, to build portfolio balance and reliable income, while managers also focus on prudently managing volatility. Those qualities are essentials that can help you make long-term financial plans and reach your investment goals.

Here’s what makes quality income funds an attractive opportunity right now:

1. Elevated yields: Great now; and historically strong indicators of future returns

The numbers tell the story: We’re seeing elevated yields for fixed income globally now. While the past is no guarantee of the future, starting yields have historically been a strong indicator of future performance. Therefore, it makes sense to lock in today’s relatively high rates— as they have the potential to deliver over the coming years.

High starting yields have been a predictor of future performance, so it makes sense to lock them in today

Bond index historically realized 5-year returns, by starting yield

Source: Bloomberg Finance L.P.; data as of May 31, 2025. Returns are calculated using month end data since 31st May 2000. Index used is the Bloomberg US Aggregate Index (LBUSTRUU Index). Indices are not investment products and may not be considered for investment. Past performance is not a guarantee of future results.

Another reason to seize the opportunity: Should the US economy turn sluggish and prompt the Federal Reserve to cut interest rates (lower yields typically follow), that would make it even more advantageous to secure today’s yields while they are available. We think investors should consider adding fixed income soon, to position their portfolios for potential appreciation.

Income funds offer value compared to other fixed income vehicles, outyielding, for example, the U.S. Aggregate Bond Index’s 5% (at the time of publication). Income funds may even deliver near-term returns in line with J.P. Morgan Asset Management’s 2025 Long-Term Capital Market Assumptions for equities (to be sure, that outlook is for a 10–15 year horizon). Still, even if bonds’ heyday doesn’t last that long, they can be a very compelling choice if you’re seeking diversification and consistency.

2. Dynamic risk hedging through diversified allocations

In an uncertain economic environment, we think it’s essential to diversify fixed income risk across geographies. Income funds can access a wide range of international bond opportunities, reducing reliance on any single market.

Income funds’ ability to take a global approach can mitigate country-specific volatility and enhance return potential. These funds let investors gain access to a range of opportunities unavailable through traditional bond investments, such as parts of the securitized market¹ (including agency mortgages and other high quality securitized assets) and select emerging market opportunities that require deep due diligence and underwriting expertise.

Active income fund managers have their pick among these, and other, attractive opportunities. They can search the globe to capitalize on many different fixed income segments to tactically enhance returns, dynamically allocating assets as they seek to optimize yield and returns. Their flexibility lets managers adapt to changing market conditions and seize opportunities as they arise. Unconstrained by benchmarks, income funds source value wherever it exists.

Income funds can also hedge currency (FX) exposure. FX could be a source of volatility, but income funds’ FX exposures are broadly hedged against that volatility. By managing currency risk, income funds can potentially offer a more predictable return profile, across market condition.

Combining yield and reduced volatility enhances risk-adjusted returns—an opportunity to strengthen portfolio resilience.

3. The potential for capital appreciation

Beyond income, income funds have the potential for higher returns if yields decline (prices and yields move in opposite directions, and lower yields are a possibility if US growth slows and is met with central bank rate cuts). This additional benefit makes them a potentially attractive addition to your portfolio.

Our fixed income platform was created to address a wide range of wealth goals and help build resilience into investment portfolios during times of volatility. Reach out to your J.P. Morgan team to see if income funds, built by credit specialists and designed for high yield-level income but with less risk, could make sense for you.

¹Securitized fixed income securities are those backed by a “pool” of underlying assets that may include mortgages, auto loans or credit card receivables, for example.

Key Risks

The funds described herein are not available to the general public and may only be promoted in Hong Kong to Professional Investors and in Singapore to Accredited Investors.

JPMAM Long-Term Capital Market Assumptions

Given the complex risk-reward trade-offs involved, we advise clients to rely on judgment as well as quantitative optimization approaches in setting strategic allocations. Please note that all information shown is based on qualitative analysis. Exclusive reliance on the above is not advised. This information is not intended as a recommendation to invest in any particular asset class or strategy or as a promise of future performance. Note that these asset class and strategy assumptions are passive only – they do not consider the impact of active management. References to future returns are not promises or even estimates of actual returns a client portfolio may achieve. Assumptions, opinions and estimates are provided for illustrative purposes only. They should not be relied upon as recommendations to buy or sell securities. Forecasts of financial market trends that are based on current market conditions constitute our judgment and are subject to change without notice. We believe the information provided here is reliable, but do not warrant its accuracy or completeness. This material has been prepared for information purposes only and is not intended to provide, and should not be relied on for, accounting, legal or tax advice. The outputs of the assumptions are provided for illustration/discussion purposes only and are subject to significant limitations.

“Expected” or “alpha” return estimates are subject to uncertainty and error. For example, changes in the historical data from which it is estimated will result in different implications for asset class returns. Expected returns for each asset class are conditional on an economic scenario; actual returns in the event the scenario comes to pass could be higher or lower, as they have been in the past, so an investor should not expect to achieve returns similar to the outputs shown herein. References to future returns for either asset allocation strategies or asset classes are not promises of actual returns a client portfolio may achieve. Because of the inherent limitations of all models, potential investors should not rely exclusively on the model when making a decision. The model cannot account for the impact that economic, market, and other factors may have on the implementation and ongoing management of an actual investment portfolio. Unlike actual portfolio outcomes, the model outcomes do not reflect actual trading, liquidity constraints, fees, expenses, taxes and other factors that could impact the future returns. The model assumptions are passive only – they do not consider the impact of active management. A manager’s ability to achieve similar outcomes is subject to risk factors over which the manager may have no or limited control.

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Dynamic income funds: Adapting to a changing world

Portfolio resilience: Helping you achieve long-term goals

1. Elevated yields: Great now; and historically strong indicators of future returns

High starting yields have been a predictor of future performance, so it makes sense to lock them in today

Bond index historically realized 5-year returns, by starting yield

2. Dynamic risk hedging through diversified allocations

3. The potential for capital appreciation

Key Risks

Important Information

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offices near you

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Dynamic income funds: Adapting to a changing world

Portfolio resilience: Helping you achieve long-term goals

1. Elevated yields: Great now; and historically strong indicators of future returns

High starting yields have been a predictor of future performance, so it makes sense to lock them in today

Bond index historically realized 5-year returns, by starting yield

2. Dynamic risk hedging through diversified allocations

3. The potential for capital appreciation

Key Risks

Important Information

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In this article

you may also like

Case studies: Ready liquidity for life goals and investment opportunities

Experience the full possibility of your wealth

Middle East tensions challenge renewed investor confidence

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