The exchange traded industry has grown by leaps and bounds over the past two decades. There are currently over 1,600 exchange traded products listed in the U.S., with more than $1.8 trillion in assets under management.
In fact, the popularity of ETFs is not confined to the U.S. markets, but it has seen a rise all over the world. The global ETF industry size now stands at $2.5 trillion, as per an article by Investor Daily.
While undoubtedly the space is being dominated by issuers like State Street, Vanguard and BlackRock, the popularity of ETFs is driving new players into the ETF world (read: State Street Launches Six International Quality ETFs).
In line with this trend, J.P. Morgan Chase & Co. (JPM), a leading global financial services firm, has recently launched its first ETF – The JPMorgan Diversified Return Global Equity ETF – under the ticker “JPGE”. Though J.P. Morgan has some exchange traded notes (ETN) listed in the market, JPGE is the firm’s first ETF, thereby expanding its product portfolio.
JPGE in Focus
The fund seeks to track the FTSE Developed Diversified Factor Index, following the so called “Smart Beta” strategy. The fund combines the two approaches under a single umbrella – a top down risk allocation framework and a bottom up multi-factor stock ranking process.
The bottom up approach results in selecting stocks based on four factors: value, size, momentum and low volatility. Moreover, the top down approach results in an equally weighted portfolio of stocks selected across different regions and sectors (read: PowerShares Launches New Active Multi-Strategy ETF).
This approach results in the fund holding a large portfolio of 459 stocks from the developed markets. Due to the fund’s focus on an equal weighted strategy, JPGE holds a well diversified portfolio of stocks with no stock forming more than 0.6% of total fund assets.
Hutchison Whampoa, Samsung Electronic and Hynix Semiconductor Inc. are currently the top three holdings of the firm. The fund charges 37 basis points as annual fees.
How might it fit in a portfolio?
The fund is an intriguing option for investors willing to invest in products that follow a smart beta strategy. After a five-year bull run, U.S. markets are expected to remain subdued this year. Returns might not be as spectacular as last year’s amid the continued Fed taper and lower GDP growth forecast.
This strategy adopts a “middle path” between passive investing and active investing. Though not so popular with retail investors, these strategies have become quite popular among institutional investors.
The index attempts to choose stocks that have a better chance of risk-return performance, based on certain fundamental characteristics or a combination of these characteristics (read: 3 Smart Beta ETFs to Beat the Market in 2014).
The fund gives investors an opportunity to own a basket of stocks from the developed markets filtered through multiple criteria including relative valuation, price momentum, low volatility, and specific market capitalization.
The “Smart Beta” space has a number of products including funds which follow the simplest equal-weighting, fundamental weighting and volatility/momentum based weighting methodologies (read: Beat the Market with Fundamentally Strong ETFs).
PowerShares FTSE RAFI US 1000 Portfolio (PRF), S&P 500 Low Volatility ETF (SPLV), Guggenheim S&P 500 Equal Weight ETF (RSP), PowerShares FTSE RAFI US 1000 Portfolio (PRF), iShares MSCI US Quality Factor ETF (QUAL), RevenueShares Large Cap (RWL) and PowerShares S&P 500 High Quality Portfolio (SPHQ) are some of the products that might pose competition to the newly launched product.
Nonetheless, the recently launched product might still manage to make room for itself in this niche segment and might attract more assets especially from investors who want to add a quality touch to their portfolios.
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