JP Morgan to launch its first active equity ETFs in Europe

Oct 3rd, 2018 | By | Category: Equities

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JP Morgan Asset Management (JPMAM) has unveiled three active equity ETFs that are set to debut in Europe in the coming weeks.

JP Morgan to launch its first active equity ETFs in Europe

JP Morgan has unveiled details of its first active equity ETFs to be launched in Europe.

Scheduled to list on the London Stock Exchange, Xetra, and Borsa Italiana on 16 October 2018, the three funds will be the asset manager’s first actively managed equity ETFs in Europe.

They will provide access to broad market portfolios of global, US, and European stocks whilst taking into consideration environmental, social and governance (ESG) factors.

The three funds are the JPM Europe Research Enhanced Index Equity (ESG) UCITS ETF (JREE LN), benchmarked against the MSCI Europe; the JPM US Research Enhanced Index Equity (ESG) UCITS ETF (JREU LN), benchmarked against the S&P 500; and the JPM Global Research Enhanced Index Equity (ESG) UCITS ETF (JREG LN), benchmarked against the MSCI World.

The funds are being pitched as ‘enhanced index’ products, designed to offer similar risk and portfolio construction characteristics to their traditional market cap benchmarks but with an enhanced level of return.

To achieve this additional return, the portfolio managers leverage fundamental quantitative research into the long-term prospects of each of the constituents in the benchmark index. From this research, which is conducted in-house by JPMAM, the portfolio managers can rank issuers within each sector group according to their relative value and, in turn, construct portfolios that take small overweight positions in companies deemed more attractive and small underweights in companies deemed less attractive.

It is from this discretionary divergence from benchmark weights that the portfolios seek to earn their alpha.

Typically, enhanced index funds aim to achieve about 0.75%-1.00% of annualised excess returns with tracking error of approx 0.75%-1.25% versus their benchmarks.

The portfolio managers will also integrate a systematic consideration of ESG investment principles into the portfolio management decision-making process. And companies involved in certain ethically contentious sectors, such as controversial weapons and tobacco, will be excluded.

Bryon Lake, Head of International ETFs at JPMAM, said, “We are delighted to be delivering these first-of-their-kind active equity ESG ETFs. This is the type of innovation our clients and the industry have been looking for. These ETFs seek to incorporate the best of both active and passive management and can play a versatile role in portfolios, including as a cost-effective core exposure to certain equity markets or as an asset allocation tool.”

Each ETF comes with a total expense ratio of 0.25%.

While the new funds will be JPMAM’s first traditional long-only active equity ETFs in Europe, the asset manager already offers a line-up of actively managed ETFs offering alternative beta and short-duration fixed income strategies, as well as a suite of more traditional passive fixed income ETFs.

The firm’s alternative beta ETFs include the long/short equity factor-based JPM Equity Long-Short UCITS ETF and the CTA-esque JPM Managed Futures UCITS ETF, while the active fixed income strategies include the JPMorgan GBP Ultra Short Income UCITS ETF, the JPMorgan EUR Ultra Short Income UCITS ETF, and the JP Morgan USD Ultra-Short Income UCITS ETF.

“Since launching our first European ETFs, a year ago this November, we now offer solutions across equities, fixed income and alternatives,” added Lake.

“We look forward to continuing to build out our range over the coming years with active, strategic beta and passive investment strategies which leverage the best of JPMAM’s investment capabilities.”

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