JP Morgan adds currency-hedged ETFs to smart beta suite

Apr 5th, 2016 | By | Category: Equities

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JP Morgan Asset Management has expanded its suite of smart beta exchange-traded funds with the launch of two new ETFs, the JP Morgan Diversified Return Europe Currency Hedged Equity ETF (JPEH) and JP Morgan Diversified Return International Currency Hedged Equity ETF (JPIH).

JP Morgan adds currency-hedged ETFs to smart beta suite

Robert Deutsch, Global Head of ETFs for JP Morgan Asset Management.

The new offerings provide currency-hedged exposure to two of JP Morgan’s existing ETFs, the JP Morgan Diversified Return Europe Equity ETF (JPEU) and the JP Morgan Diversified Return International Equity ETF (JPIN).

Each fund weights constituents according to scores derived from an evaluation of the company across four factors that have been proven to be historically linked to superior risk-adjusted performance compared to broad market investing. These include a value factor (derived from the firm’s book-to-price ratio and earnings yield); a volatility factor (derived from the inverse of the standard deviation of local weekly total returns over a one year period); a momentum factor (derived from the one year total return in local currency divided by the standard deviation of daily local returns over one year); and a size factor (derived from the inverse of each company’s free float market capitalization in US dollars).

The funds also aim to reduce volatility compared to traditional market cap-weighted approaches by employing a top-down risk allocation framework that equally distributes portfolio risk over 10 sectors. Each new fund conducts a currency hedge overlay to protect against adverse foreign exchange movements against the US dollar.

Robert Deutsch, Global Head of ETFs for JP Morgan Asset Management, said in a statement: “As volatility and currency risk continue to worry investors, clients are increasingly turning to our strategic beta products for a new approach to address the drawbacks of market cap-weighted indices. We are thrilled to expand our investment capabilities with currency-hedged ETFs, complementing our existing strategies and offering clients more choices.”

The ETFs are linked to indices created by FTSE Russell, a leading provider of indices to the ETF industry. Specifically, JPEH tracks the FTSE Developed Europe Diversified Factor 100% Hedged to USD Index and JPIH tracks the FTSE Developed ex-North America Diversified Factor 100% Hedged to USD Index.

“We are excited to be able to draw on our significant global index capability to design innovative new indexes to serve as the basis for ETFs provided by our global partners like JP Morgan,” added Ron Bundy, CEO of North America benchmarks for FTSE Russell.

Each fund has a total expense ratio of 0.49%.

JP Morgan Asset Management’s full ETF suite now includes seven smart beta funds:
JP Morgan Diversified Return International Equity ETF (JPIN)
JP Morgan Diversified Return International Currency Hedged ETF (JPIH)
JP Morgan Diversified Return Emerging Markets Equity ETF (JPEM)
JP Morgan Diversified Return Global Equity ETF (JPGE)
JP Morgan Diversified Return US Equity ETF (JPUS)
JP Morgan Diversified Return Europe Equity ETF (JPEU)
JP Morgan Diversified Return Europe Currency Hedged ETF (JPEH)

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