Q2 2026 Fund Commentary

Commentary and opinions are provided by J.P. Morgan Investment Management Inc..

Market commentary

In the second quarter of 2026, geopolitics and technology continued to dominate market movements. Risk sentiment turned decisively positive as the war in the Middle East began to de-escalate and Brent crude oil prices started to fall after peaking at USD$120 per barrel in April. Global bond markets didn’t have a clear direction as markets evaluated the impact of energy price volatility on inflation and economic growth.

In the U.S., consumer prices rose 0.5% in May, resulting in a year-over-year increase of 4.2%, largely because of a 7.0% jump in gasoline prices. Despite a relatively tight labour market, average hourly earnings rose just 3.5% in May, the second-smallest gain in five years. The U.S. Federal Reserve Board (Fed) held its federal funds rate in a range of 3.50% to 3.75%, but both the statement and press conference skewed hawkish. In the eurozone, the European Central Bank (ECB) delivered its first policy interest rate hike after an 11-month pause, bringing the deposit rate to 2.25%. Falling inflation expectations and a weaker growth outlook supported bond prices, with headline eurozone inflation at 3.2% in May and core inflation at 2.5%. In the U.K., the growth outlook worsened as the composite purchasing managers’ index fell to 49.7 in May and house prices showed renewed weakness. The latest inflation figure of 2.8% came in below consensus, and core inflation fell from 3.1% year over year to 2.6%, reducing the probability of near-term interest-rate hikes from the Bank of England. In Japan, the Bank of Japan delivered a widely expected policy interest rate hike to 1.0% in June, with strong wage growth momentum and a 6.3% year-over-year jump in producer prices keeping its policy bias hawkish.

Performance

Duration (sensitivity to interest-rate changes) positioning contributed to performance, led by U.K. and eurozone exposure as softer economic growth and inflation data drove a repricing of expectations for interest-rate hikes from the Bank of England and the ECB. An underweight position in U.S. duration also contributed to performance as U.S. Treasury yields rose following a more hawkish Fed.

Spread-sector positioning contributed to performance. An overweight allocation to investment-grade corporate credit contributed as spreads compressed, supported by resilient economic data, healthy corporate fundamentals and continued investor demand for yield. Agency mortgage-backed securities and hard-currency emerging market debt also contributed to performance, benefiting from resilient fundamentals and supportive technical conditions as sentiment improved on the back of the decline in oil prices.

No material detractors from the Fund’s performance were recorded during the quarter as the Fund recovered strongly across its portfolio.

Portfolio activity

The sub-advisor added to holdings in Canada and increased investment-grade corporate credit and the Fund’s positions in U.K. and U.S. duration. The sub-advisor sold the Fund’s overweight position in eurozone duration and reduced the Fund’s overweight position in Australia.

Outlook

In the sub-advisor’s view, the probability of continued economic expansion has risen materially, reflecting easing geopolitical risks following de-escalation in conflict in the Middle East, the prospect of lower energy prices and strengthening global capital expenditure driven by artificial intelligence (AI), energy security, and investments in defence and infrastructure. Growth remains resilient, though the key debate is whether the expansion ultimately proves productivity-led or inflationary.

The sub-advisor expects the Fed to hold interest rates steady through year-end, balancing improving inflation, supported by lower energy costs, against the possibility of labour market tightness as the capital expenditure cycle broadens. Other major central banks are largely expected to remain on hold as well, with limited scope for further interest-rate hikes. While the sub-advisor remains mindful of renewed geopolitical volatility and the risk that enthusiasm around AI investment becomes excessive, the resilience of households and businesses, combined with structurally expansionary fiscal policies and a broadening global investment cycle, supports a constructive outlook for economic growth into 2027.

The Fund remains positioned to benefit from diversified, carry-oriented opportunities. The sub-advisor continues to favour an overweight allocation to investment-grade corporate credit, where yields remain attractive and are supported by solid fundamentals and healthy investor demand, and sees attractive opportunities across emerging market debt. The Fund remains modestly overweight in duration, with a preference for Europe, Canada and Australia.