Insights from Strategy
The Strategy Group within J.P. Morgan partners with clients to develop objective, thoughtful solutions to the broad investment policy issues faced by corporate and public defined benefit pension plans, insurance companies, endowments and foundations. The Strategy Group is one of J.P. Morgan’s primary centres for thought leadership for institutional clients in the areas of asset allocation, pension finance and risk management.
Credit when it’s due – The sustainability of sterling credit
Allocations to corporate bonds have nearly doubled over the past 5 years, amidst rising prices and falling spreads. Given spreads are a measure of the additional return provided by corporate bonds over their government counterparts, it is important to consider whether the corporate bonds offer adequate compensation for the risks being borne.
IORP II Lite – The End of Solvency II for Pensions?
The European Commission has announced that a proposed occupational pensions directive will not include any reference to solvency rules, and will cover only areas such as governance, transparency and reporting. Is this the end of Solvency II for Pensions?
Not drowning but waving?
Quantitative easing and UK pension schemes
In this paper, QE is framed in terms of its impact on pension schemes. Using a model of Gilts which relates macroeconomic variables to yields, the impact of QE is disaggregated from the impact of the wider economic environment. Having isolated the impact of QE, it is possible to ask a number of important questions, including: how has QE impacted interest rates?; what impact has this had on pension scheme solvency?; and what should we expect when the QE programme is reversed?
Its drivers and eight early warning signs
We believe there are eight early warning signs to monitor that will detect growing imbalances that could ultimately lead to upward pressure on prices. As a group, this panel of indicators — ranging from surveys that track inflation expectations and labour market dynamics, to indexes that track and capture global trends in available resources — is flashing green, suggesting there is little cause for concern.
Digging deeper - Emerging market debt choices
This paper explores the different types of emerging market debt and helps investors understand which one may make more sense for their portfolios.
Redefining the G-3: Welcome to the Chinese renminbi
For years, the “G-3” currencies have been the U.S. dollar, euro and yen. That said, structural changes in the global economy and markets are redefining the G-3. This paper looks at why China’s currency, the renminbi, has overtaken the yen in terms of its influence on other currencies and markets.
Beyond 2012: Five trends shaping the U.S. economy and markets
This paper examines several of the medium-term forces that will affect economic outcomes in the US long after this year’s presidential election. Some of those factors – which do not necessarily depend on the outcome of this year’s vote – may hurt growth and markets (both in the U.S. and elsewhere), while others may boost returns.
The missing link: Economic exposure and pension scheme risk
We propose an alternative approach to dealing with joint scheme and sponsor risk that can provide protection against extreme adverse events for the sponsor while maintaining a particular target rate of return.
Solvency II for Pensions – EIOPA’s Advice to the European Commission
Paul Sweeting provides an update on the impact of Solvency II for Pensions.
UPDATED: Twelve in 2012: How political events are shaping markets
With more than a dozen key elections around the world, in countries representing nearly 50% of global GDP, we take a fresh look at how politics and policy are continuing to be a major market driver.
Top Investment Questions for 2012
Rebecca Patterson, our Chief Markets Strategist, addresses several of the key challenges faced by investors in the coming year.
Risky business...don’t de-risk, right risk
Paul Sweeting, European Head of the Strategy Group, takes a look a de-risking and how right risking can provide for growth while moderating unrewarded interest rate risk.
A month to remember: Lessons from the August correction
August provided a rollercoaster ride for pension plans. Although funded ratios recovered significantly by the end of the month, the sharp market moves illustrated how exposed some plans were to market movements. This paper examines the lessons that can be learned for schemes and how they can protect themselves from periods of volatility.
Strategic investment in emerging markets: the role of emerging markets in a long-term portfolio
Emerging market assets, while acknowledged as an important element of the investment
universe, have lagged in their acceptance as separate asset classes in their own
In this paper, we consider their contribution to overall portfolio efficiency, looking at the risk / return characteristics of a portfolio with an allocation towards emerging markets.
Non-normal returns: are you underestimating the risk in your pension plan’s investments?
Many pension investors suffered more significant losses during the financial crisis than they may have expected. Research from the J.P. Morgan Asset Management shows that a reliance on traditional asset allocation frameworks may have led to a significant understatement of portfolio risk. Our research shows that accepting that asset classes do not behave in a ‘normal’ manner and correcting for this behaviour when modelling a portfolio’s expected returns will give pension plans a truer idea of their actual risk. This will allow pension plans to make more informed decisions on asset allocation.
A Global Cornucopia
Commodities are the oldest asset class known to man but perhaps one of the least understood today. However, we believe that commodities maybe the most relevant asset class for investors to consider as a refuge from extreme price movements - up or down in today's markets.
Non-normality of market returns
In this paper, the authors investigate non-normality of market returns, as well as its potential impact on portfolio efficiency and the asset allocation process.
Theory suggests that routine rebalancing can help maintain a portfolio’s optimal allocation. But, in the current environment of unprecedented market turmoil and shifting dynamics, strict adherence to this practiced discipline might not be the most appropriate risk management response.
A Case for Asia
This research brief summarises our unique case for Asia ex-Japan as one of the most attractive strategic opportunities among global markets, based not on GDP alone, but on underlying productivity growth dynamics that we believe are fueling a long-term revaluation trend in the region.