On Tuesday, we excerpted the first half of an article from our latest Bond Fund Intelligence (see our March 24 "News" "New Bond Fund Intelligence Profiles JPMorgan's Martucci and Rehman), Crane Data's new product which tracks the bond mutual fund marketplace. Today, we reprint the second half of our interview with JPMorgan Asset Management Managing Director & Portfolio Manager Dave Martucci and Managed Reserves Investment Policy Committee Chairman and Risk Manager Saad Rehman. Martucci runs the $6 billion JPMorgan Managed Income Fund, which is the largest fund we currently track among BFI's "Conservative Ultra Short Bond Fund" category. Part II follows:

BFI: Where would Managed Income fit in the spectrum of funds in the conservative ultra short space? Martucci: I think the Managed Reserves Strategy and our Managed Income Fund, more specifically, is on the more conservative end of this segment. This is by design, and it will serve us well in the coming period of increased volatility. The real question is, do clients understand how conservative ultra short funds are positioned in terms of both rates and credit? This will drive volatility and performance.

BFI: What does the fund buy? Martucci: In line with our objective to provide current income while minimizing volatility, our strategy focuses on investment grade investments, only those with a maximum maturity of three years and in. Our interest rate duration is typically between 1/4 year and 3/4 of a year, and we have a target spread duration of one year and in. We're not going out and buying significantly longer securities that traditionally can be found in more core fixed income or intermediate-type funds and hedging the duration risk.

From an instruments standpoint, we'll do Treasuries, Agencies, money market instruments (CP, TDs, and, CDs), corporate bonds, sovereigns and supranational, triple A asset-backed securities, and some Treasury futures. We do not invest in MBS in the fund and we do not invest in below investment grade securities. From a sector standpoint, we run around a 40% exposure to banks; a prime money market fund will be significantly higher, close to double that. In the asset-backed space, we focus on consumer receivables that have limited extension risk. They are all going to be triple-A rated, mostly concentrating on the one year average life and in.

BFI: How has regulation affected your trading strategy? Martucci: One of the benefits of the regulations for this space is that it has created a much shorter roll-down strategy. On the one hand you have money funds being told that they have to hold much more liquidity, and on the other, you have banks being told that they need to fund longer. The Managed Reserves strategy has stepped into this gap and seized that opportunity. In many instances, we are trading the same names you'll find in a money market fund, buying them out to 6-12 months and rolling them down the curve. So we leverage our money market fund expertise to deliver what we think is a very efficient conservative managed reserves strategy.

BFI: How integrated are you with the money fund team? Martucci: The strategy is managed separately and we have a separate trading desk. But we're a well integrated part of the Global Liquidity platform, sharing several resources. We have the same credit analysts and we share best practices in risk management. We understand that our clients have a longer time horizon, but we also understand that these investors want preservation of principal and low volatility. Importantly, we also share the same sales force. Our salespeople have a strong expertise in cash investment solutions, which allows them to offer their clients the full spectrum of our products, including Managed Reserves.

BFI: Are you seeing interest from the longer end as well as from clients in MMFs? Martucci: We're seeing interest from clients at both ends of the yield curve. Some sophisticated clients who are looking for protection in a rising rate environment have started to move down the curve. But then you also have clients in the traditional money market space who are not only searching for incremental returns but also face the prospect of floating NAVs. Rehman: An influx of clients is now entering the conservative ultra short space. We think that this growing segment can be better understood and navigated when clients have a clear picture of these funds' risk-return profiles.

Note: Crane Data's newest product, Bond Fund Intelligence, tracks the bond mutual fund marketplace with an emphasis on the ultra-short bond fund segment. BFI's complement, Bond Fund Intelligence XLS, is a monthly spreadsheet with performance and statistics on the largest bond funds and ultra-short bond ETFs. The monthly BFI newsletter is $500 a year, or $1,000 including BFI XLS. ("Site licenses" are $2K/yr.) Let us know if you'd like to learn more about these new products (e-mail info@cranedata.com for the latest issue), and watch for our Bond Fund Intelligence website (bondfundintelligence.com) to go live in the second half of 2015.

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