The Evolution of ETF Innovation & Strategies
This article was originally published on ETFTrends.com.
Investors no longer have to strictly track market capitalization-weighted benchmark indices to passively follow market movements. Through innovative ETF strategies, many can hedge against market returns and enhance portfolio returns.
In the latest Bloomberg Media Studios ‘Welcome to the New Age’ podcast, Yasmin Dahya, Head of Americas Beta Specialists at J.P. Morgan Asset Management, discusses the evolution of ETF innovation and strategies with ETF Trends publisher Tom Lydon.
If you’re trying to stay ahead of the new innovation in ETFs, this is a podcast you don’t want to miss: click here to listen to the full episode.
"Look at alternatives," Yasmin Dahya, Head of Americas Beta Specialists at J.P. Morgan Asset Management, said from Inside ETFs. "It would be a combination of look for the interesting innovations happening out there. ETFs don't equal market-cap passive. Managers are coming out with some really exciting things to help build a stronger portfolio."
For example, the JPMorgan Diversified Alternatives ETF (JPHF) combines various hedge fund-esque, alternative investment strategies in an easy-to-use ETF wrapper. Specifically, JPHF will include equity long/short, event driven and global macro based strategies.
The managing advisors of JPHF will try to generate positive total returns over time while including a relatively low correlation to traditional markets, which helps smooth out a portfolio if the markets experience any unexpected turns ahead.
These types of alternative strategies help investors diminish downside risk and still capture upside potential to generate improved risk-adjusted returns over time.
"Risk adjusted returns - we talk a lot of about; very hard for end clients to relate to it, but when they start feeling volatility they're going to hope that their portfolios has things in it that really helps them with that. The exciting thing is that ETFs can now solve that problem for you," Dahya added.
Along with alternative hedging strategies like JPHF, the rising group of smart beta or factor-based index ETFs also seek to limit risks and improve market exposures.
For instance, factor-specific smart beta ETF plays like the JPMorgan Diversified Return US Equity ETF (JPUS) are backed by historical and academic data and have revealed long-term benefits when incorporated in a diversified investment portfolio.
These multi-factor ETFs provide advisors and investors direct access to hedge fund exposure inside an ETF vehicle. The underlying indices diversify risks that are less likely to be rewarded while overweighting areas that are more likely to produce positive results.
The underlying customized FTSE Russell indexing methodology selects components based on a diversified set of factor characteristics, such as relative valuation, price momentum and quality. The enhanced indexing process would allow the ETFs to exclude expensive, low quality companies with poor momentum, which could help the ETFs diminish drawdowns without sacrificing too much from any potential upside of a market recovery.
Click here to listen to the full podcast episode.
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