JP Morgan Asset Management has launched its first multi-factor equity ETFs in Europe.
JP Morgan Asset Management has rolled out its first multi-factor equity ETFs in Europe. (file image)
The JPMorgan Global Equity Multi-Factor UCITS ETF (JPGL) and JPMorgan US Equity Multi-Factor UCITS ETF (JPUS) provide smart beta exposure to global developed and US equity portfolios while targeting returns attributable to value, quality, and momentum factors.
Each fund tracks a proprietary index, owned by JP Morgan and administered by FTSE Russell, that strives to produce market returns with lower volatility than similar cap-weighted indices over the long-term.
To achieve this aim, the indices diversify risk across sectors and securities and tilt constituent weightings towards the desired factors.
The global fund tracks the JP Morgan Diversified Factor Global Developed (Region Aware) Equity Index which is based on the parent FTSE Developed Index.
Each constituent in the parent index universe is analyzed based on its exposure to individual factors relative to other firms within the same region and ICB Industry classification. A composite score for each firm is calculated using a weighted average of individual factor scores.
The methodology reweights the securities so as to maximize the aggregate composite score of the index while adhering to several constraints. These include floors and caps on individual securities as well as target weights for regions and industries. Additionally, the index seeks to limit the change in individual constituent weights in a bid to reduce excessive turnover. Reconstitution and rebalancing occur quarterly.
The US fund tracks the JP Morgan Diversified Factor US Equity Index which adheres to a similar methodology but uses the Russell 1000 Index as its starting universe. The Russell 1000 a well-known reference for US large- and mid-cap equity performance.
Each fund comes with an expense ratio of 0.19% and has been listed on London Stock Exchange, Deutsche Börse Xetra and Borsa Italiana.
Bryon Lake, Head of International ETFs at JP Morgan Asset Management, commented, “Our multi-factor equity ETFs have been designed to help keep investors fully invested across market cycles.
“JPGL and JPUS both have the potential to capture most of the upside in equity markets while providing less volatility in down markets. We’ve received a lot of client interest in these types of strategies. Multi-factor ETFs are a fast-growing area of the fund universe and we’re delighted to be able to offer clients a new and attractively priced solution to help support their overall asset allocation needs.”
JP Morgan offers the same multi-factor strategies in the US, branded as ‘Diversified Return’ funds, listed on the NYSE Arca exchange. The global fund has accumulated around $130 million in assets under management while the US fund has gathered $760m. The US-listed suite also consists of ETFs targeting the US mid-cap, US small-cap, European, international, and emerging market universes, suggesting that the European listed UCITS suite has plenty of room to grow.
Whilst the new funds are JP Morgan Asset Management’s first independent foray into factor ETFs in Europe, they are not the first JP Morgan-designed factor ETFs to list in Europe. In July 2015 the JP Morgan investment banking business partnered with Paris-headquartered ETF issuer Lyxor on a suite of risk premia ETFs designed to capture the low size, value, quality, low beta and momentum factors within European equities. The partners then followed up with an additional pair of multi-factor ETFs. The original risk premia funds have since been canned, but the more recent multi-factor products are still in existence. The partners’ commitment to and conviction in the funds might be tested, however, following JP Morgan’s decision to build out its own range of factor ETFs and the funds’ modest AUM.