JP Morgan debuts active equity ETFs; shutters hedge fund ETFs

May 26th, 2020 | By | Category: Equities

JP Morgan Asset Management has announced changes to its US ETF product suite including the introduction of its first actively managed equity ETFs and the closure of ETFs providing hedge fund-style returns.

Bryon Lake, International Head of ETFs at JP Morgan Asset Management

Bryon Lake, Head of Americas ETF Distribution at JP Morgan Asset Management.

Active equity launches

The asset manager has launched two actively managed equity ETFs offering very different strategies.

The JPMorgan Equity Premium Income ETF (JEPI US) provides exposure to US large-cap equities while seeking to boost income and manage volatility.

Meanwhile the JPMorgan International Growth ETF (JIG US) invests in stocks globally, excluding the US, with a focus on high growth companies.

Both ETFs have listed on NYSE Arca and are managed by JP Morgan’s Global Equities platform which oversees more than $500 billion AUM.

Bryon Lake, Head of Americas ETF Distribution at JP Morgan Asset Management, commented, “It was important that we took our time to develop thoughtful and disciplined actively managed equity ETF solutions that give investors tools to pursue better outcomes.

“We are eager to combine our firm’s global active equity management platform with the benefits of the ETF technology as part of the next wave of active solutions we bring to market for our clients.”

The JPMorgan Equity Premium Income ETF targets a significant portion of S&P 500 returns with less volatility, in addition to monthly income.

The fund primarily invests in S&P 500 securities, although other US equities may also be selected. The ETF’s managers focus on building a portfolio with lower volatility compared to the S&P 500.

To boost income, the ETF may invest up to 20% of its assets in equity-linked notes (ELNs). According to the fund’s prospectus, these ELNs are derivative instruments that combine the economic characteristics of the S&P 500 and short call options within a single note.

The premiums from the call options provide regular monthly income; however, the call options also limit the fund’s ability to fully participate in potential increases in the value of the equity portfolio.

The ETF comes with an expense ratio of 0.35%.

“Regardless of the market environment, investors demand an active strategy that captures income without taking on undue risk,” said Hamilton Reiner, Head of US Equity Derivatives at JP Morgan Asset Management. “JEPI provides an attractive solution to help investors realize their financial goals and round out their portfolios with conviction.”

The JPMorgan International Growth ETF invests in developed and emerging market securities, excluding the US. According to the fund’s prospectus, common stock, preferred stock, partnership interests, depositary receipts, and warrants are all eligible for inclusion.

The fund employs a fundamental bottom-up approach that seeks to identify companies with strong growth and quality characteristics.

The ETF comes with an expense ratio of 0.55%.

ETF closures

JP Morgan has announced the upcoming closure of six ETFs.

The $20m JPMorgan Long/Short ETF (JPLS US), the $40m JPMorgan Managed Futures Strategy ETF (JPMF US), and the $30m JPMorgan Event Driven ETF (JPED US) will all cease trading on 12 June, while the $40m JPMorgan Diversified Alternatives ETF (JPHF US) will close on 19 June.

None of the funds found continued success with investors.

In addition, JP Morgan has scheduled the $10m JPMorgan Diversified Return Europe Equity ETF (JPEU US) and the $60m JPMorgan Diversified Return Global Equity ETF (JPGE US) to shutter on 19 June.

These funds utilize a multi-factor smart beta approach to provide lower volatility exposure to their respective universes by diversifying risk across sectors and securities. While the European and global strategies have failed to generate investor demand, JP Morgan offers a US equity fund in the same suite that houses over $500m in AUM.

Commenting on the six ETF closures, Lake said, “We regularly monitor and evaluate our product line-up as market and economic conditions evolve. This process allows us to optimize and scale our product offerings to better meet client objectives and market demand.”

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