JP Morgan launches smart beta EM sovereign bond ETF on NYSE

Feb 1st, 2018 | By | Category: Fixed Income

JP Morgan Asset Management (JPMAM) has launched the JPMorgan USD Emerging Markets Sovereign Bond ETF (JPMB US) on NYSE Arca, providing smart beta exposure to US dollar-denominated bonds issued by sovereigns and quasi-sovereigns in emerging markets.

Joanna Gallegos JP Morgan

Joanna Gallegos, US head of ETFs for JP Morgan Asset Management.

JPMB tracks the JPM Emerging Market Risk-Aware Bond Index – created by the firm’s Quantitative Beta Strategies team and derived from the flagship JP Morgan EMBI Global Diversified Index.

The index uses a rules-based filtering and alternative risk weighting three-step process.

The first step seeks to achieve a more liquid subset of the starting universe by filtering out instruments with smaller face amounts outstanding and those that are closer to maturity. The second step seeks to limit country-specific risk by removing those countries with the highest spread risk. Finally, the third step seeks to reallocate the remaining countries to target a stable allocation of spread risk from its investment-grade and high-yield sub-components.

According to JPMAM, the screening and weighting process enhances diversification and gears the index towards managers who want diversification or those who face limitations on the amount of portfolio exposure they can take to individual issuers.

“Fixed income ETFs continue to revolutionize investing by providing access to an often challenging asset class in a liquid, transparent and cost-effective vehicle,” said Joanna Gallegos, US head of ETFs for JP Morgan Asset Management. “With JPMB, clients can gain exposure to emerging market debt, which is a growing component of global bond markets, and it can serve as a diversifier to a core bond portfolio.”

The index rebalances on a monthly basis within each country and semi-annually across countries. The current largest country exposures, as of 1 February 2018, are Turkey (7.3%), Russia (5.8%), Brazil (4.7%), Ukraine (4.5%) and Dominican Republic (4.5%).

The fund has a net expense ratio of 0.39% due to a contractual fee waiver in place until at least February 2021. Its gross expense ratio is 0.64%.

JPMAM has announced plans to roll out a UCITS-compliant version of JPMB in Europe, namely the JP Morgan USD Emerging Markets Sovereign Bond UCITS ETF (JPMB LN), on the London Stock Exchange on 22 February 2018 as part of a trio of ETFs that represent the firm’s first fixed income ETFs in Europe.

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