JP Morgan Asset Management has expanded its line-up of ‘Research Enhanced’ equity ETFs in Europe with the introduction of two new funds.
Olivier Paquier, Head of ETF Distribution in EMEA for JP Morgan Asset Management.
The JPM China A Research Enhanced Index Equity (ESG) UCITS ETF (JREC) targets China’s onshore equity market, while the JPM AC Asia Pacific ex-Japan Research Enhanced Index Equity (ESG) UCITS ETF (JREA) invests in stocks listed in the Asia Pacific region excluding Japan.
JREC comes with an expense ratio of 0.40%, while JREA is priced at 0.30%.
Both ETFs have been rolled out across Europe including listings on London Stock Exchange in US dollars and pound sterling, on SIX Swiss Exchange in US dollars, and on Deutsche Börse and Borsa Italiana in euros.
JP Morgan’s Research Enhanced ETFs aim to provide similar risk characteristics compared to a broad market performance benchmark while harnessing insights from the firm’s extensive network of analysts to pursue incremental active management.
The funds’ portfolio managers take a large number of small active positions – overweighting stocks the analysts find attractive and underweighting those they don’t – thereby seeking modest positive excess returns, compounded over time.
Typically, each ETF will aim to achieve 0.75%-1.00% in annualized excess returns with tracking errors of approximately 0.75%-1.25% versus their benchmarks.
The ETFs also integrate a systematic consideration of ESG investment principles into the portfolio management process; companies violating international norms as well as those involved in certain socially and ethically questionable sectors, such as controversial weapons manufacturers and tobacco, are excluded. As such, the ETFs have been classified as Article 8 products under the EU’s Sustainable Finance Disclosure Regulation (SFDR).
Olivier Paquier, Head of ETF Distribution in EMEA for JP Morgan Asset Management, commented: “Our Research Enhanced equity ETFs have been designed to offer investors a cost-effective solution which blends active stock selection with passive index exposure, within a robust ESG framework, making them an attractive option for investors looking to earn incremental excess returns on their equity exposure at low active risk. These ETFs are efficient and flexible tools that will help our clients to complement existing core portfolios, add diversification, or implement tactical views.”
The newly listed China A-share ETF is benchmarked against the MSCI China A Index which currently consists of 493 large and mid-cap Chinese A-share companies that are eligible for trading on the China-Hong Kong Stock Connect.
According to JP Morgan, compared to a purely passive investment approach, the ETF may be able to better mitigate the impact of high turnover in China’s onshore market, including near-term periods of investor exuberance and pessimism. The fund’s active management is designed to exploit these market inefficiencies through a long-term investment lens, using local market expertise as well as a rigorous valuation and ESG framework.
Paquier added: “Despite being one of the largest and fastest-growing economies in the world, investors’ exposure to onshore Chinese equities remains relatively low. The average international investor’s total China exposure currently is just 4.6% of total assets, and a large part of this is likely to be in offshore Chinese equities through emerging markets equity strategies. JREC can help investors find a balance in the representation of Chinese equities in their portfolios. They will now be able to capture China A-share opportunities in a simple, easy-to-trade, and attractively-priced active ETF for the first time.”
The Asia Pacific ex-Japan ETF, meanwhile, is benchmarked against the MSCI AC Asia Pacific ex-Japan Index which captures large and mid-cap representation across four of the five developed market countries (excluding Japan) and eight emerging market countries in the Asia Pacific region. With 1,283 constituents, the index covers approximately 85% of the float-adjusted market capitalization in each country.
JP Morgan offers a further four Research Enhanced ETFs which target global developed, US, European, and emerging market equities. Collectively, they house around $2.5bn in assets.