PORTFOLIO SPOTLIGHT
“ Every dividend that an investor receives is genuine book income, not return on capital,” Norelli says.“ But it’ s possible the income they receive might have been earned in a prior month.”
Helping Hands
JPIE holds approximately 2,000 securities. That’ s a lot, and while it’ s not unusual for a large, multi-asset fixed-income fund, it’ s still a hefty number to monitor. The fund’ s stated benchmark is the Bloomberg U. S. Aggregate Index, but that’ s only for comparison purposes and the fund isn’ t managed to the benchmark.“ It takes a very broad and deep expertise to build a portfolio like this,” Norelli says.
The team that helps J. P. Morgan build out the JPIE portfolio includes roughly 300 investment professionals in five countries. The managers construct the portfolio with an eye on both longerterm macro trends and shorter-term economic realities.
“ There are scores of people who touch this portfolio in any given year, whether
Portfolio Statistics
Number Of Holdings 2,035 Yield To Maturity( Net) 5.85 % Duration
2.32 years Turnover Ratio 120 % Net Expense Ratio 0.39 %
Performance, asset numbers, holdings and portfolio stats as of 8 / 5 / 25. Turnover stat as of 6 / 30 / 25. Sources: JPMorgan Asset Management and Morningstar. through securities selection or research contributions,” Norelli says.“ And it’ s not always the same people; it depends on where the market opportunities are.”
Slight Differences
While JPIE and its related mutual fund are similar, they’ re not mirror images with identical holdings, allocations and returns. For starters, Norelli explains, the size, complexity and trading mechanisms of fixed income make it difficult to produce identical portfolios in mutual funds and their ETF siblings. Another hitch relates to the different money flows going in or out of the two funds. It depends, he says, on whether the bonds you want to buy are available and whether there are bids for the bonds you want to sell.
“ And because the timing— both in dollar terms and in percent of the portfolio terms— is different between the two portfolios, the positions diverge based on the availability of liquidity at the time the transactions need to occur,” he adds.
Still, the managers aim to keep the two funds more or less in line with each other.“ Our goal is to make them perform as closely as possible,” Norelli says.
One of the big reasons ETF inflows have been booming at the expense of mutual funds is that they’ re often more tax efficient thanks to how they’ re structured and traded. For example, the in-kind transfers of shares within ETFs allow the funds to reduce their capital gains distributions to shareholders.
Still, investors shouldn’ t assume they’ ll save a tidy amount in taxes just for picking the ETF over the mutual fund. The taxation of the dividends is the same in both, Norelli says, because fixed-income investments kick off ordinary income, not the qualified dividends you get from equities. Since the funds pay out ordinary income, the team’ s strategy minimizes capital gain distributions. He notes that they haven’ t done a capital gains distribution every year, and the ones they have done have been small.
“ So investors should expect that the majority of the return they get should come in the form of dividends, not capital gain distributions,” Norelli says.
Income First
Investors who piled into money market funds in recent years for 4 % to 5 % returns probably should start reallocating some of that cash before the Federal Reserve begins lowering interest rates again and the returns on those funds shrink.
The Fed has been in pause mode with its rate cuts since last December, but it seems likely that its next directional move will be to lower rates rather than raise them. For investors wanting to reallocate some cash into the non-equity portion of their portfolios, fixed-income funds could be an option. And if rates do fall, that could mean some capital appreciation for those funds.
In the case of JPIE, though, investors should keep in mind that this is an income-oriented fund where capital appreciation takes a back seat.“ Because our duration is relatively short, a plummeting interest rate environment will still result in positive capital appreciation, but not as much as a longer duration fund would,” Norelli says.
But if the fund maintains its yield in the 5 % to 6 % range with its current portfolio mix, that would help satisfy investors’ hunger for investment income.
44 | FINANCIAL ADVISOR MAGAZINE | SEPTEMBER 2025 WWW. FA-MAG. COM