JP Morgan Asset Management, one of the largest issuer of mutual funds in the US, ventured into the fast growing exchange-traded funds space by launching the JP Morgan Diversified Return Global Equity ETF (JPGE) on the NYSE Arca.
The launch of this much-anticipated geographically diversified “smart beta” equity fund is expected to build on JPM’s reputation as an active asset manager and has been designed to make clients feel confident during periods of heightened market volatility.
JPGE follows the FTSE Developed Diversified Factor Index, yet maintains a quasi active tilt to outperform traditional market-cap-weighted index funds. Meant to be a global core equity play for investors, it is based on the premise that market-cap weighted single-factor indexes expose investors to greater risks due to a systemic bias toward overvalued stocks.
Therefore, the fund seeks to mitigate risks by allocating equity securities from developed global markets based on four factors: size, value, momentum and low volatility. The combination of four factors is likely to result in better risk-adjusted returns, research has shown.
The two-pronged investment philosophy – a bottom-up multi-factor stock ranking process and a top-down risk allocation framework, results in the fund holding more than 450 stocks.
The underlying index allocates nearly 31 percent of its holdings to US stocks while Japan gets another 22.4 percent. No other country in the index manages double-digit allocation. Sector wise, consumer goods, consumer services and health care corner more than 37 percent of the index’s weight.
Although the “smart beta” space has quite a few products such as the iShares MSCI US Quality Factor ETF (QUAL), PowerShares S&P 500 High Quality Portfolio (SPHQ), S&P 500 Low Volatility ETF (SPLV) etc, JPGE might still manage to find favor with investors who wish to add a touch of quality to their core equity portfolios.
The fund has an annual expense ratio of 0.38 percent.
Disclosure: No holdings
Contact Ulli