JPMorgan Global Macro Opps Class A Units (PER0758AU) Report & Performance

•Global equity markets moved higher in June, while sovereign bonds were down. Risk assets performed well amid increased optimism about the outlook for the US and China, as well as AI developments, and despite continued policy tightening from major central banks. Market moves were amplified by the fact that the multiple drivers of optimism coincided and combined with momentum-related flows at a point when liquidity was thin. The fund delivered negative returns.

•US recession risk was priced out as the expected broad data deterioration failed to materialise for another month. Increased optimism about the ability of the US to engineer a soft landing was boosted by well-behaved inflation data. Against this backdrop, our long US volatility, long US duration and short US equity derivatives strategies delivered negative returns.

•Weak Chinese data was brushed aside as expectations rose for significant stimulus, supporting China-related assets. This weighed on our long US dollar versus short China-centric currencies such as the Australian dollar, as well as our broad negative equity beta tilt.

•AI developments were a catalyst for strong technology performance. This benefitted our cloud computing and digital transformation strategies. However, it led to negative performance from our short Nasdaq exposure, which we hold in part as a near-term hedge for our secular equity and because it looks too expensive. We believe the upcoming earnings season may catalyse a reversion if AI developments are not translated into better near-term revenues.

•Major central banks broadly delivered hawkish surprises, with more than expected delivered by the Bank of England, the Bank of Canada and the Reserve Bank of Australia, which worked against our short currency exposures in these countries. The European Central Bank and the US Federal Reserve signalled that they are not done yet in this hiking cycle, while the Bank of Japan continued to leave policy unchanged, which negatively impacted our long Japanese yen exposure held for its defensive properties and the expected path of policy.

•Global equity and fixed income markets posted small negative returns for May, disguising what was a volatile month for risk assets with significant dispersion in equity sector performance. Markets were largely focused on sticky inflation data, further interest rate rises and commentary from major central banks, as well as uncertainty surrounding the US debt ceiling. The MSCI World Index was down 0.3%, though the tech sector rallied strongly, and the JPM Global GBI fell 0.8% (hedged to Australian dollar). The fund return was negative.

•The tech sector bucked the downward trend in equity markets and rallied strongly as investors re-priced expectations for the impact of advances in Artificial Intelligence. Our long equity strategies held to reflect secular themes such as cloud computing and digital transformation contributed positively. However, we hedged some of this exposure amid the deteriorating economic backdrop with short Nasdaq via futures and this was the biggest detractor from performance for the month. Our short US large cap via options and long US volatility strategies also detracted.

•Activity and sentiment data was mixed, with persistent weakness in manufacturing while services held up better. Europe saw weaker business confidence and retail sales, while manufacturing and consumer spending data in China disappointed. Against this backdrop, our long US dollar versus China-sensitive currencies such as the Australian dollar and South African rand added value.

•Inflation remained elevated and labour markets continued to be tight, prompting a number of major central banks to take another step in their hiking cycles.Against this backdrop, bond yields rose as markets repriced rate hike expectations and we introduced long US and UK duration strategies, which contributed positively.

Global equity and fixed income markets were volatile amid an unexpected banking crisis. US and European financial sectors sold off sharply and bond yields plummeted before swift action from regulators and policymakers eased investor fears of immediate contagion. The MSCI World Index and the JPM Global GBI were up 2.5% (hedged to Australian dollar). The fund return was positive, benefitting from our flexibility to adjust exposures as the backdrop shifted.

Financial turmoil was sparked by the collapse of Silicon Valley Bank, followed by the closure of Signature Bank and demise of Credit Suisse within the space of a week. The series of bank failures – the biggest since 2008 – saw bond yields drop and equities sell off sharply, particularly banks, as investors questioned the stability of other institutions. While we did not specifically predict the banking stress, we thought that central banks engaging in the most synchronised and rapid monetary tightening in 50 years was likely to create some casualties.

The portfolio was well positioned for the market moves and benefitted predominantly from long US duration, long US volatility and short equity strategies – we were net short equity at mid-month. Our long secular equity strategies, particularly rate-sensitive exposures such as digital transformation and cloud computing, added value.

Our view on US growth had deteriorated coming into March amid weakening consumer spending and manufacturing data, and we remained concerned about the impact of tightening liquidity. Meanwhile, the recent data improvement in Europe appeared close to a peak. While our view deteriorated, markets remained buoyant, and we sought to take advantage of this potential mispricing by adjusting to a more cautious portfolio. We added to our long US duration and long US volatility strategies and reduced net equity exposure through derivatives and a modest trimming of select names. These strategies performed strongly, and we took profit in the wake of the sell-off, re-risking the portfolio as we felt markets were extended to the downside.

Regulators and policymakers allayed investor fears through swift action that catalysed a rapid equity market rebound from which we benefitted through our long equity strategies before reverting back to our cautious positioning.

Global equity and fixed income markets moved lower in February as evidence of lingering inflation pressures, continued labour market tightness and resilient growth data drove an upward repricing of monetary policy expectations. The MSCI World Index and JPM Global GBI were both down 1.7% (hedged to Australian dollar). The fund return was negative.

Global inflation data and survey measures showed increasing signs of lingering price pressures, while labour markets remained tight. Key central banks continued to raise rates accordingly, with the US Federal Reserve hiking by 25 basis points (bps) and both the European Central Bank and Bank of England raising rates by 50 bps, while signalling further hikes to come. The combination of incoming data and central bank activity fuelled expectations for an extended path of monetary policy tightening, which weighed on risk assets. Our long equity exposure detracted in aggregate, particularly in rate-sensitive areas such as digital transformation and luxury consumer, although this was partly offset by our Nasdaq exposure held via options. Given the extent of rate moves coupled with the conviction that disinflation should prevail over the medium term, we took profit on our tactical US short duration strategy and switched to a long position, which detracted from performance. Elsewhere, the Bank of Japan saw a change in leadership and shifting policy stance, and we took profit on our long Japanese yen exposure and added long Japanese banks, which contributed positively to performance.

Activity data remained resilient globally, with flash purchasing managers’ indices coming in ahead of expectations. The US saw particular strength in services activity, while Europe continued to show signs of a broadbased recovery, which further supported the rate re-pricing and we consequently closed our Germany flattener strategy. In China, we remain optimistic that the ongoing recovery will continue and saw some improvement in activity levels, although the reopening effect was more muted in other measures. Coupled with the rates backdrop, this hurt our long Australian dollar exposure and long European basic resources versus short Eurostoxx strategy, while we took profit on our long Mexican peso strategy which has performed well this year.

Global equity and fixed income markets rebounded sharply in January amid further signs of global disinflation, better-than-feared activity data and China’s re-opening. The MSCI World Index was up 6.2% and the JPM Global GBI was up 1.8% (hedged to Australian dollar). The fund return was positive, benefiting from our shift to a more pro-risk stance.

Growing evidence of easing inflationary pressures globally fueled hopes of a slower pace of tightening by central banks and supported risk assets. Increasing net equity exposure early in the month benefited performance.

Our long equity strategies added value, particularly our cloud computing and digital transformation strategies, as well as our long NASDAQ exposure via options on which we took profit. Switching our US dollar exposure from long to short versus long Japanese yen was also beneficial, while a weaker dollar also supported our long gold strategy, which we removed. To reflect our view that markets might be getting too optimistic about central banks slowing, we introduced a tactical short US duration strategy.

Activity data surprised to the upside in China and Europe, supported respectively by the removal of further virus-related restrictions and an improved energy backdrop. Our China-exposed luxury consumer names performed well amid the re-opening. To reflect the better backdrop, we removed our long European healthcare and utilities relative value equity strategies and added long European basic resources equity via futures. We also switched our Australian dollar exposure from short to long and added long Euro versus short Swiss franc with both expressions having a positive beta.

While data was mixed in other regions, the probability rose for a global recovery. This led us to reduce our defensive portfolio tilt beyond China and Europe. We added select semi-conductor names and removed our long US utilities and healthcare versus short US large-cap strategy. We also introduced a long Norwegian Krone versus short Swedish Krone strategy to reflect our view on divergent monetary policy.

•Global equity and fixed income markets fell sharply in December amid more-hawkish-than-expected central bank policy, while global activity data was mixed. The MSCI World Index dropped 5.1% and the JPM Global GBI was down 1.8% (hedged to Australian dollar). The fund return was negative.

•More-hawkish-than-expected monetary policy weighed on investor sentiment. The European Central Bank delivered a 50 basis-point rate hike coupled with hawkish communication, and announced quantitative tightening measures. Further to this, other key central banks including the US Federal Reserve remained hawkish, and the Bank of Japan made a surprise adjustment to its yield curve control policy. Our long Japanese yen exposure, which we increased over the month, added value, as did our long US versus short Australian duration strategy, long defensive equity relative-value strategies and long gold. Conversely, our long US duration detracted, while our long US technology exposure through our cloud computing and digital transformation strategies also suffered.

•Activity data surprised positively in Europe but remained mixed elsewhere. European business and consumer survey data both came in better than feared, in part supported by an improved energy backdrop, while US data including manufacturing surveys, retail sales and housing was more muted. These mixed developments on growth were coupled with increasing signs of disinflation globally, including the US consumer price index, which delivered a second consecutive downside surprise. We reflected the slightly better balance of risks in the portfolio by bringing net equity exposure out of negative territory, though to levels that remain below our long-run average. This move worked against us in the month.

•China abandoned its strict Covid-19 policy as the government announced the widespread removal of virus-related restrictions. Strategies held in part to reflect our near-term caution on China, such as our short Australian dollar versus long US dollar strategy, detracted amid immediate optimism for China’s reopening. However, this in turn benefited our China-exposed luxury consumer and emerging market financial equity strategies.