JP Morgan Asset Management has launched a new ETF offering access to a core US equity portfolio aligned with the transition to a low carbon economy.
The fund delivers a meaningful reduction in carbon intensity without resorting to broad exclusions or sector deviations.
The JPMorgan Carbon Transition US Equity ETF (JCTR US) has listed on NYSE Arca and comes with an expense ratio of 0.15%.
The fund is referenced to the JPMorgan Asset Management Carbon Transition US Equity Index, a proprietary index co-developed by the asset manager’s Sustainable Investing and Quantitative Beta Solutions (QBS) research teams.
The index is derived from the Russell 1000 universe of US-listed large and mid-cap stocks and has been designed to deliver at least a 30% reduction in carbon intensity, combined with a year-on-year de-carbonization of at least 7% – in line with the EU’s Climate Transition Benchmark (CTB) framework for sustainable investing.
This objective is achieved without deviating from the sector weights of the Russell 1000 or employing company exclusions other than the removal of controversial weapons manufacturers. In this way, the index minimizes the active risk or tracking error relative to the parent universe.
The methodology makes use of a proprietary research framework that utilizes both primary data, sourced directly from companies, as well as alternative data such as JP Morgan’s in-house ‘ThemeBot’ natural language processing tool.
The framework assigns each company an aggregate score based on the firm’s production of direct and indirect emissions as well as its approach to reducing emissions and managing resources.
The companies are then re-weighted relative to their weights in the Russell 1000 while maintaining sector allocations comparable to the parent index. Firms with higher scores have a higher weight in the index and, conversely, those with lower scores have lower weights in the index.
Rebalancing occurs on a quarterly basis.
Jennifer Wu, Global Head of Sustainable Investing at JP Morgan Asset Management, commented, “Investing in carbon transition aware strategies needs to start now. Differences are emerging between the potential winners and losers in the low carbon transition, and by acting early, before climate risks and opportunities are fully priced in, investors can capture potentially significant returns as prices continue to adjust. We’ve had interest from a range of clients looking to leverage our framework to help meet their specific sustainable investment goals.”
Bryon Lake, Head of Americas Client ETF at JP Morgan Asset Management, added, “As investors ready portfolios for the transition to a lower-carbon future, we’re excited to meet our clients in the new decade with JCTR. Our sustainable strategy allows investors to embrace long-term carbon transition trends and consider the most relevant risks and opportunities across all sectors while maintaining a low tracking error and cost-efficiency.”
JP Morgan introduced its Carbon Transition strategy in Europe last month with the launch of the JPMorgan Carbon Transition Global Equity UCITS ETF on the London Stock Exchange (JPCT LN / JPTC LN), Xetra (JPCT GY), and Borsa Italiana (JPCT IM). This Irish-domiciled fund applies the same approach to the MSCI World universe of stocks. It comes with an expense ratio of 0.19%.