JP Morgan launches ultra-short muni bond ETF

Oct 19th, 2018 | By | Category: Fixed Income

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JP Morgan Asset Management has launched the JPMorgan Ultra-Short Municipal ETF (JMST US) on Cboe BZX. The actively managed fund is the first ETF globally to offer targeted exposure to ultra-short municipal bonds.

Joanna Gallegos JP Morgan

Joanna Gallegos, US Head of ETFs at JP Morgan Asset Management.

The fund is aimed at investors seeking federal tax-exempt income who are also concerned about the impact of rising interest rates on portfolio performance.

The ETF will maintain a target duration of less than two years, implying that the fund will lose less than 2% of its value in the case of a one-off 1% parallel increase in yields, ignoring the effects of convexity.

“Investors have become wary of fixed income investments in a rising rate environment,” said Joanna Gallegos, US Head of ETFs at JP Morgan Asset Management.

“JMST’s focus on low duration positions should help to mitigate interest rate risk, while potentially offering a higher yield than tax-exempt money market funds.”

JP Morgan notes the fund may serve as a diversifier to a portfolio’s core exposure and the shorter duration can help to reduce volatility.

The strategy leverages the expertise of JP Morgan’s Municipal Bond and Global Liquidity business to select primarily investment grade bonds through a value-driven, bottom-up approach. Both fixed and floating rate bonds may be selected for inclusion.

Up to 10% of the portfolio can comprise municipal securities with high yield credit ratings in an effort to boost returns, while up to 20% of the fund may be invested in money market funds.

According to the fund’s prospectus, the managers will select municipal bonds that they believe will perform well over a full market cycle. Such securities are identified through a risk/reward analysis that includes an evaluation of interest rate risk, credit risk, duration, liquidity, and the legal and technical structure of the transaction.

JMST comes with an expense ratio of 0.18%.

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