Investment Strategy

Dynamic income funds: Adapting to a changing world

Fixed income today is more than portfolio ballast in a storm: It's also one of our highest conviction ideas. Finding sources of portfolio resilience is critical with tariff uncertainty, periods of market turmoil and questions about the economy’s direction.

Plus, today’s fixed income yields are attractive, offering the potential for a welcome income cushion and diversification. Should a recession materialize, bonds would provide upside.

Of all the possible vehicles for adding fixed income, one of our high-conviction ideas to build portfolio resiliency is the “go-anywhere” income fund—an instrument whose active managers scour the globe for opportunities across geographies, sectors and types of bonds. We like how income funds can dynamically adjust to market conditions.

Portfolio resilience: Helping you achieve long-term goals

High-quality income funds are designed to give portfolios a solid foundation of reliable income and low volatility. Their income stream, at today’s near-decade high yields, may potentially offset any equity losses, should stock markets decline, dampening market fluctuations’ impact on your portfolio.

This income comes from an array of bonds a manager selects, seeking a complementary mix, portfolio balance, resilience and stability. Income fund managers are also focused on prudently managing volatility, as they generate reliable income.

These qualities make funds essential tools that can help you create long-term financial plans for your investment goals. Here’s a deeper dive into the three reasons income funds present an attractive opportunity right now.

1. Elevated yields—good now and, historically, good predictors

The numbers tell the story: We’re seeing elevated yields now for fixed income globally. While past performance is no guarantee of the future, starting yields have historically been strong predictors of future performance. So, it makes sense to lock in relatively high rates now with the knowledge that the funds may deliver over the coming years.

High starting yields have predicted future performance, so it makes sense to consider locking them in today

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

Source: Bloomberg Finance L.P. Data as of 31st May 2025. Returns are calculated using month end data since 31st May 2000. Index used is the Bloomberg US Aggregate Index (LBUSTRUU Index). Past performance is no guarantee of future results. It is not possible to invest directly in an index.

Another reason to seize the opportunity: Should the economy turn sluggish and prompt the Federal Reserve to cut interest rates—lower yields typically follow—it would be 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 growth.

Income funds also offer value compared to other fixed income vehicles, outyielding, for example, the U.S. Aggregate Bond Index’s 5% (at the time of publication).¹ Income funds may even deliver returns in the near term in line with J.P. Morgan Asset Management’s Long-Term Capital Market expectation for high yield (to be sure, that forecast is for a 10–15 year horizon).

2. Dynamic risk hedging through diversified allocations

Unconstrained by benchmarks, income funds can search the globe and source value wherever it exists. 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.

This global approach mitigates single-country risk and that enhances return potential. Investors in income funds access a range of opportunities they wouldn’t be able to get through traditional fixed income vehicles.

Today, income fund managers are also tapping a broad set of fixed income segments to tactically enhance return, including agency mortgages and other high quality securitized assets, and select areas of corporate credit. Active managers have their pick among these, and other, attractive opportunities—flexibility to adapt to changing market conditions and dynamically allocate assets as they seek to optimize yield and returns, seizing opportunities as they arise.

Income funds also hedge currency (FX) exposure. That matters because foreign exchange may be a source of volatility. Income funds’ FX exposures are broadly hedged against that risk, so currency fluctuations don't erode returns. By managing currency risk, income funds can offer a more predictable return profile, across market conditions.

3. The potential for capital appreciation

Finally, income funds have the potential for higher returns through appreciation, if yields decline (prices and yields move in opposite directions).

These opportunities make income funds a potentially attractive addition to your portfolio.

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.

¹Bloomberg Finance L.P., data as of June 4, 2025.

Index Definitions

U.S. Aggregate Bond Index: The Bloomberg Barclays (BB) US Aggregate Bond Index is a broad-based flagship benchmark that measures the investment grade, US dollar-denominated, fixed-rate taxable bond market. The index includes Treasuries, government-related and corporate securities, MBS (agency fixed-rate and hybrid ARM pass-throughs), ABS and CMBS (agency and nonagency).

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Investing in fixed income products is subject to certain risks, including interest rate, credit, inflation, call, prepayment and reinvestment risk. Any fixed income security sold or redeemed prior to maturity may be subject to substantial gain or loss.

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Dynamic income funds: Adapting to a changing world

Portfolio resilience: Helping you achieve long-term goals

1. Elevated yields—good now and, historically, good predictors

High starting yields have predicted future performance, so it makes sense to consider locking 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

Index Definitions

Important Information

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