Investors have to look harder for sources of income and non-agency mortgages are one of the cheaper asset classes which can provide returns.
Speaking at JP Morgan’s annual investor conference in London, Sheikh said these securities were safer than investors believed and non-agency mortgages currently make up 4.4% of the fund.
‘These are the mortgages that were issued in the US that caused the great financial crisis, the subprime bonds which were issued in 2006 and 2005. We think they are a great investment and people look at us in horror when we tell them that we think that they are attractive,’ Sheikh said.
'We believe those bonds, if they were actually going to default they would have done it by now. We have got a specialist team who look through those baskets of bonds line by line to do really in-depth analysis and select the ones which are really good.
'They also work as a nice diversifier in our portfolio,' he added. 'We make sure we are constantly looking for the cheapest sources of income globally.'
The largest asset class in the fund is high yield at 27.2%. European equity makes up 13.5% of the fund and Sheikh said QE by central banks was distorting markets. This had made some markets expensive and had changes investor behaviour.
‘An area that we really like would be the bulls of the European equity market for the last year or so. It seems crazy to me that if you compare the yield on the Eurostoxx versus the European high yield market, the Eurostoxx yields more,’ he said.
‘You can get a higher level of yield and with some potential growth. There are differences between the two but I think it gives you a sense of the dislocation in valuations. It is in those equity type assets where we think there are the most attractive opportunities at the moment.’
Over three years to the end of September 2017, the JPM Global Income fund returned 11.28% in euro terms. This compares to a rise of 14.60% by its Citywire-assigned benchmark, the LCI BBGUS HY 2%/MSCI Wl Hdg/BBGGl Ag Crd(40:35:25), over the same time frame.