Veteran portfolio managers and a deep supporting cast ably execute JPMorgan Government Bond’s disciplined mortgage-focused mandate.
Comanagers Michael Sais and Bob Manning each have more than three decades of experience managing mortgage-backed securities. The luxury of a deep supporting cast of securitized managers and research analysts makes this team as strong as any in the intermediate government Morningstar Category. Sais takes the lead role here, executing this approach that invests only in US government backed debt, but their expertise in sourcing and selecting various agency MBS structures stands out. The managers tap an eight-person dedicated securitized analyst team for additional bottom-up research.
Disciplined security selection and stable duration highlight the fund’s style. The strategy doesn’t only own Treasuries and agency debt as in the Bloomberg US Government Bond Index. Instead, it features agency MBS, which offer better convexity profiles than plain-vanilla passthroughs. This style results in a more predictable portfolio and stable duration profile, limiting extension in periods of rising yields, for example. While the process considers macro themes, bottom-up security selection drives portfolio construction. Agency-backed residential and commercial MBS and collateralized mortgage obligations typically a 45ccount for %-65% of assets. Treasuries (15%-30%) and agencies (3%-20%) take a supporting role. The fund’s approach to interest rate risk stands out, too, normally keeping duration between 5.0 and 5.5 years.
All bonds in the fund are US government guaranteed, while relative value calls drive subtle portfolio shifts. June 2024’s portfolio featured a mix of Treasuries and agencies (37.8% of assets), agency CMBS (18.3%), agency CMOs (19.5%), residential passthroughs (20.4%), and cash. The managers recently found better value in MBS, increasing its agency pass-through stakes by about 2 percentage points over the past year while reducing agency CMBS and Treasuries. The fund’s 5.7-year duration (as of June 2024) was little changed since a year ago; while the managers have allowed duration to drift slightly above its upper band, don’t expect it to exceed six years.
Long-term performance is compelling. Since January 1997, Sais' first full month on the fund, the institutional shares’ 4.06% annualized return through August 2024 beat its distinct intermediate government peer median’s 3.65% and the Bloomberg US Government Bond Index’s 3.86%. This top-decile result resulted in strong risk-adjusted performance. While the fund’s long-term standard deviation is lower than peers, the fund’s typical longer-duration profile has lagged in shorter-term rising yield periods.