J.P. Morgan - Guide to the Markets_watermark

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Global fixed income spreads and returns

Fixed income spreads

%, option-adjusted spread 20

	18
	16							Current
								Range since 1998
	14							Average
	12
	10
income
	8
Fixed	6
	4															4,1
													3,7
																3,7
	2						1,1			1,2			1,5
	0
		Euro IG US IG								UK IG				EMD		Euro HY US HY
													(USD Sov.)

				GTM – Europe		| 81
Fixed income returns					Ann. return
2015	2016	2017	2018	YTD	2Q19	since ’08
€ :12,8%	21,0%	6,1%	5,9%	11,0%	3,4%	10,4%
EM Debt	US HY	Euro HY	US Treas.	EM Debt	Euro Gov	US HY
LCL:1,2%	17,5%	6,1%	0,9%	10,6%	3,4%	7,7%
12,3%	13,5%	2,4%	2,7%	10,5%	3,0%	9,2%
US Treas.	EM Debt	Euro IG	US HY	US HY	US IG	EM Debt
0,8%	10,2%	2,4%	-2,3%	10,1%	4,5%	6,6%
10,6%	10,1%	1,4%	2,4%	10,3%	2,8%	8,0%
US IG	Euro HY	Infl Linked	US IG	US IG	Infl Linked	US IG
-0,7%	10,1%	1,4%	-2,5%	9,9%	2,8%	5,4%
6,4%	9,3%	0,2%	1,3%	7,6%	2,4%	7,3%
Portfolio	US IG	Euro Gov	Portfolio	Portfolio	Portfolio	Euro HY
0,1%	6,1%	0,2%	-1,4%	7,4%	3,2%	7,3%
6,3%	8,1%	-2,9%	1,0%	7,5%	2,3%	7,0%
US HY	Portfolio	Portfolio	Euro Gov	Euro HY	EM Debt	Portfolio
-4,6%	6,4%	4,2%	1,0%	7,5%	3,8%	5,5%
1,7%	4,7%	-4,0%	0,2%	6,0%	2,2%	6,0%
Euro Gov	Euro IG	EM Debt	EM Debt	Euro Gov	Euro IG	US Treas.
1,7%	4,7%	9,3%	-4,6%	6,0%	2,2%	3,4%
0,8%	4,1%	-5,6%	-1,3%	5,6%	2,2%	5,0%
Infl Linked	US Treas.	US HY	Euro IG	US Treas.	Euro HY	Euro Gov
0,8%	1,0%	7,5%	-1,3%	5,2%	2,2%	5,0%
0,5%	3,8%	-6,5%	-1,5%	5,4%	1,6%	4,6%
Euro HY	Infl Linked	US IG	Infl Linked	Euro IG	US Treas.	Euro IG
0,5%	3,8%	6,4%	-1,5%	5,4%	3,0%	4,6%
-0,6%	3,2%	-10,1%	-3,7%	4,1%	1,1%	2,8%
Euro IG	Euro Gov	US Treas.	Euro HY	Infl Linked	US HY	Infl Linked
-0,6%	3,2%	2,3%	-3,7%	4,1%	2,5%	2,8%

	Source: (All charts) Bloomberg Barclays, BofA/Merrill Lynch, J.P. Morgan Economic Research, Refinitiv Datastream, J.P. Morgan Asset Management. UK IG:
	Bloomberg Barclays Sterling Agg. – Corporates; US HY: BofA/Merrill Lynch US High Yield Constrained; EM Debt: J.P. Morgan EMBI Global; Euro HY: BofA/Merrill
	Lynch Euro Non-Financial High Yield Constrained; US IG: Bloomberg Barclays US Agg. – Corporate – Investment Grade; US Treasuries: Bloomberg Barclays US
	Agg. Gov. – Treasury; Euro IG: Bloomberg Barclays Euro Agg. – Corporate; Euro Gov.: Bloomberg Barclays Euro Agg. Government; Infl Linked: Bloomberg Barclays
	Euro Gov. Inflation-Linked. Hypothetical portfolio (for illustrative purposes only and should not be taken as a recommendation): 20% Euro Gov.; 15% US Treasuries;
81	10% Linkers; 15% US IG; 10% Euro IG; 10% US HY; 5% Euro HY; 15% EM Debt. Annualised return covers period 2008 to 2018. Returns are unhedged in euro and
	local currencies. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 30 June 2019.

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Commodities

GTM – Europe | 82

WTI crude oil price and US rig count

USD/barrel (LHS); number of rigs (RHS)

160

Oil price

Rigs

140

120

100

80

60

assets

40

20

Other

0

'07

'08

'09

'10

'11

'12

'13

'14

'15

'16

'17

'18

'19

Metal prices

	Index level, rebased to 100 in Jan 2007
1.800	200
1.600	175
1.400	150
1.200												Copper
	125
1.000
	100
800							Aluminium
	75
600
	50												Zinc
400
200	25											Nickel
0	0
	'07	'08	'09	'10	'11	'12	'13	'14	'15	'16	'17	'18	'19

Source: (Left) Baker Hughes, Bloomberg, J.P. Morgan Asset Management. (Right) Bloomberg, J.P. Morgan Asset Management. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 30 June 2019.

82

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Gold	GTM – Europe | 83

Gold vs. real US 10-year Treasury yields

	$ per Troy ounce (LHS), % inverted (RHS)
	1.800
						Real yields (inverted)
	1.600
	1.400
assets	1.200
Other		Gold
	1.000
	'12	'13	'14	'15	'16	'17	'18	'19

Gold price

	$ per Troy ounce
-1,0	2.500
-0,8
-0,6	2.000
-0,4				Inflation-adjusted gold price
-0,2				Gold price
	1.500
0,0
0,2
0,4	1.000									30 June 2019:
											$1.412
0,6
0,8	500
1,0
1,2	0
	'78	'82	'86	'90	'94	'98	'02	'06	'10	'14	'18

Source: (All charts) Refinitiv Datastream, J.P. Morgan Asset Management. Real yield is the 10-year US Treasury inflation protected security yield. Inflation-adjusted gold price is the historic gold price in today’s money, converted using the US Consumer Price Index. The 2001 low is defined as April 2001, and the 2011 peak is defined as August 2011. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 30 June 2019.

83

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Other assets

Stock-bond correlation and downside protection

GTM – Europe | 84

Rolling six-month stock and bond correlations

Of weekly total return on US equities (S&P 500) and US Treasuries (10-yr) 1,0

Stock and bond returns moving in the same direction

0,5

0,0

-0,5

-1,0

'92

'97

'02

'07

'12

'17

Hedge fund returns in different market environments

%, average total return in up and down months, 2001-present 4

2,9

2

1,2

0,9

0,5

0,3

0

-0,7

-1,1

-2

		S&P 500		US bonds**
-4		HFRI FW*		HFRI FW*
	-3,9
	S&P 500 up S&P 500 down			Bonds up	Bonds down

Source: (Left) Refinitiv Datastream, J.P. Morgan Asset Management. (Right) Barclays, Hedge Fund Research, Refinitiv Datastream, Standard & Poor’s, J.P. Morgan Asset Management. *HFRI FW is Hedge Fund Research Index Fund Weighted. **US bonds is the Bloomberg Barclays US Aggregate Bond Index. Downside protection refers to attempting to minimise the impact of any falls in the underlying investments. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 30 June 2019.

84

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Alternative investments	GTM – Europe | 85
Global core infrastructure returns	Macro hedge fund relative performance & volatility

	%, rolling 4-quarter returns from income and capital appreciation										Index level (LHS); % change year on year (RHS)
	20										70												35
												VIX											30
											60
	15																						25
											50												20
																							15
	10										40
																							10
											30												5
	5
																							0
											20												-5
assets
	0																						-10
											10
Other																							-15
													Macro hedge fund relative performance to HFRI
	-5										0												-20
	'09	'10	'11	'12	'13	'14	'15	'16	'17	'18	'94	'96	'98	'00	'02	'04	'06	'08	'10	'12	'14	'16	'18

Source: (Left) MSCI, J.P. Morgan Asset Management. Infrastructure returns represented by the “low risk” category of the MSCI Global Quarterly Infrastructure Asset Index. Data show rolling one-year returns from income and capital appreciation. The chart shows the full index history, beginning in the first quarter of 2009. (Right) CBOE, Hedge Fund Research Indices (HFRI), Refinitiv, J.P. Morgan Asset Management. Macro hedge fund relative performance is calculated relative to the HFRI fund weighted hedge fund index. VIX is the implied volatility of S&P 500 Index based on options pricing. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 30 June 2019.

85

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Other assets

Sustainable investing	GTM – Europe | 86
Environmental, social and governance considerations	Global equities

Carbon emissions

Water & waste

Biodiversity

Labour management Health & product safety Privacy & data security

Management & oversight Board composition Ownership & pay

Price index
150					MSCI ACWI ESG Leaders
140					MSCI ACWI
130
120
110
100
90
80
70
60
50
40
'08	'09	'10	'11	'12	'13	'14	'15	'16	'17	'18	'19

Source: MSCI, Refinitiv Datastream, J.P. Morgan Asset Management. Both MSCI ACWI and MSCI ACWI ESG Leaders are in USD, rebased to 100 at the inception of the ESG Leaders index. MSCI ACWI ESG Leaders is a capitalisation-weighted price index that provides exposure to companies with high Environmental, Social and Governance (ESG) rankings relative to their sector peers and excludes companies with involvement in alcohol, gambling, tobacco, nuclear power and weapons. ESG rankings are given to companies based on the MSCI framework. The MSCI ESG Leaders index aims to target the sector weights of the underlying indices to limit systematic risk introduced by the ESG selection process. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 30 June 2019.

86

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Other assets

Asset markets in coming years

GTM – Europe | 87

Past and expected returns

%, annualised return

EM equity US private equity Eurozone large cap Japan equity EM local currency debt UK large cap

Global infrastructure

US core real estate

US high yield bonds hedged

US large cap

European high yield bonds

Diversified hedge funds hedged

Euro government bonds

World government bonds

Commodities

Euro cash

Return since 2009

Expected return in coming 10-15 years

-5

0

5

10

15

20

Source: 2019 Long-Term Capital Market Assumptions, November 2018, J.P. Morgan Multi-Asset Solutions, J.P. Morgan Asset Management. Returns are nominal and in euros. Past returns are calculated from the start of 2009 up to 3Q 2018, or the most recent available data. The projections in the chart above are based on J.P. Morgan Asset Management’s proprietary long-term capital market assumptions (10-15 years) for returns of major asset classes. The resulting projections include only the benchmark return associated with the portfolio and do not include alpha from the underlying product strategies within each asset class. The assumptions are presented for illustrative purposes only. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe.

Data as of 30 June 2019.

87

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Investing

principles

Life expectancy

Probability of reaching ages 80 and 90

% probability, persons aged 65, by gender and combined couple

100

92

80

76

67

60

40

24

20

GTM – Europe | 88

Men

Women

Couple – at least one lives to specified age

50

35

0

80 years

90 years

Source: ONS 2015-2017 Life Tables, J.P. Morgan Asset Management. Past performance is not a reliable indicator of current and future results.

Guide to the Markets - Europe. Data as of 30 June 2019.

88

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Cash investments	GTM – Europe | 89
Income generated by €100.000 in a three-month bank deposit	Total return of $1 in real terms

	EUR (LHS); % change year on year (RHS)										USD, log scale, total returns
	5.000		2007: €4.650							5	10.000		Annualised real returns
		Income											1899–2018	2000–2018		Equities: $1.890
	4.000							Inflation		4		Equities	6,5%		3,6%
											1.000	Bonds
													2,1%		4,3%
												Cash	0,6%		-0,6%
	3.000									3
								June 2019: €0			100
	2.000									2						Bonds: $12
											10
	1.000									1						Cash: $2
	0									0	1
Investing principles	-1.000									-1	0
	'01	'03	'05	'07	'09	'11	'13	'15	'17	'19	1899	1919	1939	1959	1979	1999
	Source: (Left) Bloomberg, Eurostat, J.P. Morgan Asset Management. Inflation is the percentage change year on year for the eurozone harmonised index of consumer
	prices. (Right) Bloomberg, Bloomberg Barclays, FactSet, Shiller, Siegel, Standard & Poor’s, J.P. Morgan Asset Management. Pre 2010 returns: Shiller, Siegel; from
	2010: Equities: S&P 500; Bonds: Bloomberg Barclays US Treasury 20+ year Total Return Index; Cash: Bloomberg Barclays US Treasury Bills Total Return Index.
	Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 30 June 2019.

89

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	The power of compounding														GTM – Europe			|	90
	€5.000 invested annually with 5% growth per year									€5. 000 investment with/without income reinvested
	EUR									EUR, MSCI Europe returns
	700.000									80.000								€76.233
									€639.199
	600.000	Starting at age 25										With dividends reinvested
		Starting at age 35										Without dividends reinvested
	500.000									60.000
	400.000								€353.803
										40.000
	300.000																	€27.578
	200.000									20.000
	100.000
Investing principles	0									0
	25	30	35	40	45	50	55	60	65	'86	'90	'94	'98	'02	'06	'10	'14		'18
					Age
	Source: (Left) J.P. Morgan Asset Management. For illustrative purposes only, assumes all income reinvested, actual investments may incur higher or lower growth
	rates and charges. (Right) Bloomberg, MSCI, J.P. Morgan Asset Management. Based on MSCI Europe index and assumes no charges. Past performance is not a
	reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 30 June 2019.

90