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Market outlook – Q2 2020

20 March 2020 by National Bank
Q2 market outlook

With unprecedented market conditions and political intervention to respond to what has now become a global pandemic, 2020 has surely seen its share of challenges so far. J.P. Morgan Asset Management has navigated this market volatility and identified opportunities for fixed income investors.

Discover the unconventional strategies implemented by the sub-advisor of the NBI Unconstrained Fixed Income Fund (the “Fund”), an underlying strategy within several NBI Portfolios1.  

Markets in brief

The impact of the COVID-19 outbreak is uncertain and ultimately will depend on the length of the disruption to activity and the effectiveness of policy responses. The substantial and coordinated monetary policy action seen from global central banks, which has included both rate cuts and quantitative easing, should help cushion the shock to financial conditions. Meaningful fiscal spending is also needed to support the global economy. 

Outlook and challenges

Recession is now the base case for the next three to six months – the question is no longer if the global economy will enter a recession, but rather how long and how deep that recession will be. 

Recession is now the base case for the next three to six months – the question is no longer if the global economy will enter a recession, but rather how long and how deep that recession will be.

As 2020 progressively unfolds, the U.S. general election will also take center stage. However, the global monetary response and fiscal stimulus packages should help offset some of the market volatility. 

Opportunities

In the face of these headwinds, we have our eyes peeled for new opportunities and are always seeking ways to enhance portfolio diversification. As such, we maintain a cautious stance and have de-risked meaningfully so far this year. 

Ultimately there will be a time to pick through the spread sectors and reengage in assets with attractive valuations. We are beginning to do this but are also conscious that areas of the market, like high yield, have moved quickly in both directions and the economic reality of a global economic shutdown are becoming more fully evident. 

In the meantime, we are favouring assets that have room to benefit from a new wave of global central bank easing:

  • Core government duration
  • Agency MBS
  • Investment grade credit

Sub-Advisor’s strategy

As opposed to traditional fixed income strategies, the Fund is not bound by benchmark-specific guidelines and has the flexibility to tap into a variety of different fixed income categories.

This unconstrained strategy will:

  • reduce correlation to traditional fixed income
  • enhance total return opportunities globally
  • remain dynamic to take advantage of changing market conditions 

The role of an unconstrained strategy in your portfolio

Use as an alternative allocation or a complement to an existing traditional fixed income portfolio:

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Legal disclaimer

1 The NBI Unconstrained Fixed Income Fund (the “Fund”) is offered by National Bank Investments Inc., a wholly owned subsidiary of National Bank of Canada. National Bank Trust Inc. acts as portfolio manager for the Fund and J.P. Morgan Investment Management Inc. (JPMIM), an indirect wholly owned subsidiary of JPMorgan Chase & Co. (JPMC), acts as portfolio sub-advisor for the Fund. J.P. Morgan Asset Management (JPMAM) is the brand name for the asset management business of JPMC and its affiliates.

Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus of the Fund before investing. The Fund’s securities are not insured by the Canada Deposit Insurance Corporation or by any other government deposit insurer. The Fund is not guaranteed, its values change frequently and past performance may not be repeated.

Views expressed regarding a particular company, security, industry, market sector, future events (such as market and economic conditions), company or security performance, upcoming product offerings or other projections are the views of only J.P. Morgan Asset Management, as of the time expressed and do not necessarily represent the views of National Bank of Canada and its subsidiaries (the “Bank”). Any such views are subject to change at any time based upon markets and other conditions, which could cause actual results to differ materially from what J.P. Morgan Asset Management presently anticipate(s) or project(s). The Bank disclaims any responsibility to update such views. These views are not a recommendation to buy or sell and may not be relied on as investment advice.

© 2020 National Bank Investments Inc. All rights reserved. Any reproduction, in whole or in part, is strictly prohibited without the prior written consent of National Bank Investments Inc.

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