JP Morgan Asset Management has launched a pound sterling-hedged share class for its European domiciled US Treasury bond ETF.
The new share class mitigates the risk of adverse currency movements between sterling and the US dollar from affecting fund performance.
The JPM BetaBuilders US Treasury Bond UCITS ETF – GBP Hedged (BBTP LN) has listed on London Stock Exchange and comes with a total expense ratio (TER) of 0.10%, the same price tag as its unhedged counterpart.
The fund is part of the asset manager’s ‘BetaBuilders’ product suite, which it markets as low-cost, passively managed ETFs ideally suited as portfolio building blocks.
The fund is linked to the proprietary JP Morgan Government Bond Index United States, providing exposure to US Treasuries, while also hedging GBP/USD currency risk at the share class level.
The index is market-cap-weighted and composed of dollar-denominated domestic government debt securities issued by the United States. Only fixed coupon bonds that are regularly priced and regularly traded are eligible for inclusion in the index, providing a liquid benchmark that can be replicated without incurring excessive transaction costs.
The portfolio management team deploy an optimisation-based investment approach to minimise tracking error versus the index, while also taking into account considerations such as liquidity and transaction costs.
John Adu, Co-Head of ETF Distribution at JP Morgan Asset Management, said, “We’re continuing to listen to and respond to clients’ needs for a range of cost-efficient solutions that are geared towards this late cycle environment. This includes currency-hedged ETFs which can help asset allocators create more balanced portfolios, as they seek to navigate an evolving macro backdrop.”
Mike Bell, Global Market Strategist at JP Morgan Asset Management, added, “While the timing of the next downturn remains uncertain, many investors are starting to add in some portfolio hedges to help balance the riskier assets in their portfolio, as we move later into the economic cycle. By including some Treasuries, investors are seeking to create a more balanced portfolio and help reduce overall portfolio losses when the next economic downturn eventually arrives.
“For UK investors thinking about incorporating US government bond exposure, they may want to consider hedging the currency risk, given the uncertainty around the outlook for sterling against the dollar.”
JP Morgan offers four other BetaBuilders fixed income ETFs in Europe.
The JPM BetaBuilders US Treasury Bond 1-3 yr UCITS ETF (JU13 LN), JPM BetaBuilders UK Gilts 1-5yr UCITS ETF (JG15 LN), and JPM BetaBuilders EUR Govt Bond 1-3 yrs UCITS ETF (JE13 LN) target the short-duration end of the yield curve within the US Treasury, UK gilt, and eurozone government bond markets, respectively, while the JPM BetaBuilders EUR Govt Bond UCITS ETF (BBEG LN) provides exposure to eurozone government bonds from across the yield curve.
All ETFs are offered with TERs of 0.10%.