JP Morgan Asset Management has introduced a new actively managed fixed income ETF in Europe targeting bonds where proceeds directly contribute to a more sustainable and inclusive economy.
JP Morgan has rolled out an actively managed impact bond ETF in Europe.
The JPMorgan ETFs (Ireland) ICAV – Green Social Sustainable Bond UCITS ETF has been listed on London Stock Exchange in US dollars (JGRN LN) and pound sterling (JGNR LN), on SIX Swiss Exchange in US dollars (JGRN SW), and on Deutsche Börse Xetra (JGNR GY) and Borsa Italiana (JGRN IM) in euros.
JGRN has come to market with $25 million in initial assets.
Massimo Greco, Head of EMEA Funds at JP Morgan Asset Management, said: “With the scale of the climate emergency well-documented, coupled with the rapid growth of the green, social, and sustainable bond markets that saw total issuance reach nearly $1 trillion in 2021, the need for innovative solutions has never been greater.
“With bonds increasingly coming back in favour as part of a diversified portfolio, we’re delighted to be able to offer an actively managed and diversified core fixed income strategy that’s been designed to explicitly align with environmentally and socially beneficial projects.”
Investment approach
The ETF is managed by Edward Fitzpatrick, Stephanie Dontas, Usman Naeem, and Qiwei Zhu, all of whom are members of JP Morgan’s Global Fixed Income, Currency & Commodities (GFICC) group. Collectively, the four portfolio managers have 70 years of financial industry experience including 49 years at JP Morgan.
The fund is benchmarked against the Bloomberg Global Aggregate Green Social Sustainability Bond 1-10 year Index which is constructed from the Bloomberg Global Aggregate Index universe, a flagship measure of global investment-grade debt from 28 local currency markets. This multi-currency parent index includes Treasury, government-related, corporate, and securitized fixed-rate bonds from issuers in both developed and emerging markets.
The benchmark index harnesses the capabilities of Bloomberg’s Sustainable Finance Group to determine whether bonds in the universe are aligned with green, social, and sustainability bond principles as set forth by the International Capital Market Association (ICMA).
Specifically, eligible bonds must clearly outline that their proceeds will be entirely designated for market-accepted green or social activities; the bond’s issuer must outline the decision-making process it follows to determine the eligibility of green or social projects; the bond’s proceeds should be tracked by the issuer and attested to by a formal internal process; and the issuer should file at least annual reports confirming the project’s ongoing compliance with green and social principles.
JP Morgan notes that the majority of bonds held by the ETF are likely to be represented in the benchmark, although the firm utilizes its own sustainability framework to determine green or social bond eligibility, also based on ICMA principles.
JP Morgan’s proprietary ESG analysis will also exclude bonds from any issuer that is determined to be in violation of UN Global Compact principles or have business operations linked to certain controversial industries such as weapons, tobacco, and thermal coal, among others.
The ETF may deviate from its benchmark’s composition and risk characteristics within certain parameters. Notably, the fund may allocate up to 15% of its net assets to non-investment-grade-rated bonds in a bid to deliver enhanced yield. JP Morgan notes that duration risk is also an important consideration for the strategy – whereas green bonds typically have long durations, the ETF targets a lower structural duration by focusing on bonds with remaining maturities between one and ten years.
Portfolio construction is driven by a globally integrated investment process that analyzes fundamental, technical, and valuation factors.
Relevant fundamental factors include the competitive landscape, management of the issuing entity, historical financial performance, and expected financial results of the issuer; technical factors include the supply and demand for individual issuers and securities; and valuation factors include industry and broad market comparative value analysis.
The ETF comes with an expense ratio of 0.32% and is classified as an Article 9 product under the European Union’s Sustainable Finance Disclosure Regulation (SFDR).