JPMorgan Chase (NYSE: JPM), one of the major players in the SIV bailout, may not be a big player in the creation of SIVs, but its mutual funds do hold a lot of mortgage-backed and asset-backed securities. While not all of these securities are in trouble, you should take a close look at any mutual fund that has a significant exposure to the types of securities tied to the current credit mess. In reviewing JPMorgan bond funds, I found a number of funds with significant exposure to these securities:
As of 9/30/2007, JPMorgan Ultra Short Duration Bond Fund holds 55.1% of its portfolio in collateralized mortgage obligations, 16.7% in mortgage pass-through securities, and 15.1% in asset-backed securities. That's a huge bet on the areas of the credit markets that appear the most at risk of default right now. The mortgage mess is not going away any time soon. If you do hold this fund, you need to ask yourself, do you want that level of exposure?
As of 9/30/2007, JPMorgan Core Bond Fund holds 46.6% of its assets in collateralized mortgage obligations and 10.3% in mortgage pass-through securities. That's more than half of its assets tied to the mortgage mess. Were you expecting this type of targeted investing when you chose this fund?
As of 9/30/2007, JPMorgan Short Term Bond Fund holds 37.4% of its assets in mortgage pass-through securities, 10.7% in asset-backed securities and 5.9% in collateralized mortgage obligations. This fund does have a more diversified portfolio than the Ultra Short Duration Bond Fund with 21.3% in corporate bonds and 15.6% in short-term investments, but it's still a significant exposure to the mortgage mess.
As of 9/30/2007, JPMorgan Core Plus Bond Fund holds 34.6% of its assets in collateralized mortgage obligations and 9.1% in mortgage pass-through securities. The fund is better diversified than the Ultra Short Duration Bond fund with 31.6% in corporate bonds and 12.9% in U.S Treasury obligations, but it's still a significant exposure to the mortgage mess.
All four of these funds do have a significant exposure to the mortgage mess. You need to decide whether that is a risk you want to take. While nothing may happen, it's too early to tell whether some collateralized mortgage securities and asset-backed securities will become part of a fire sale and ultimately have to be written down. If your mutual fund happens to hold securities that must be written down, you will take a loss.
Lita Epstein is the author of more than 20 books including the "Pocket Idiot's Guide to Investing in Mutual Funds.
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Reader Comments (Page 1 of 1)
10-22-2007 @ 6:03PM
steve said...
My guess is that the investment banking outfits that were the fuel for the subprime fiasco are going to REALLY encourage forebearance on modification from all the lenders holding notes that are set to reset. That way when the ambulance chasers who are most definately gathering come after them, they can plea for mercy by claiming they are doing all they can to ameliorate the damage. Believe me, the pettyfoggers who raped the tobacco, automobile, housing, and the environmental industries (to name a few) are simply sharpening their harpoons. There's big gravy waitin' and the bankers know they're the main course.