JPMorgan backs Trump
JPMorgan Asset Management is boosting its holdings of highyield debt on the expectation that President Donald Trump’s policies will fuel domestic growth and improve corporate earnings, strengthening the balance sheets of junk-rated companies.
Following the election, the firm nearly tripled its exposure to junk bonds in its unconstrained debt fund, which permits shifts of that magnitude, and raised its exposure “meaningfully” across the board, according to Bob Michele, chief investment officer and head of global fixed income, currency and commodities at the firm’s asset management arm.
“This is historically the largest move we’ve ever made,” he said.
The reallocation comes as many on Wall Street are sounding alarms that the junk bond rally has gone too far. Strategists like Bank of America Corp’s Michael Contopoulos have warned investors not to pile into the crowded trade, especially as yields approach their all-time lows.
Michele derived his take on Trump from what he considered common themes in his campaign speeches, interviews, post-election statements and Cabinet picks.
In JPMorgan’s $2.8 billion unconstrained debt fund, net highyield exposure now stands at 35%. To reach that level, Michele not only added new junk-rated assets but also closed out all of his credit hedges, leaving in place only hedges on interest rate risk.
The firm’s managers expect high yield overall will likely return between 8% and 10% in 2017, Michele said. The average expectation on Wall Street is less ebullient, between 4% and 6%. – Bloomberg