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JP Morgan Launches International Equity ETF (JPIN)

Zacks Equity Research

After launching its first product, JPMorgan Diversified Return Global Equity ETF (JPGE), J.P. Morgan Chase & Co. (JPM), a leading global financial services firm, expanded its product portfolio in the exchange traded fund industry with its second fund.

The newly launched product – JPMorgan Diversified Return International Equity ETF (JPIN) – provides exposure to the international market and seeks to generate enhanced risk-adjusted returns while cutting down on volatility (read: ETMF: A Mutual Fund in an ETF Wrapper?).

JPIN in Focus

The fund seeks to track the FTSE Developed ex North America Diversified Factor Index, following the so-called “Smart Beta” strategy, to provide core international equity exposure. 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, while the top down approach results in an equally weighted portfolio of stocks selected across 40 different regional sectors (read: Global X Launches Sector Rotator ETF).

This approach results in the fund holding a portfolio of 338 large and mid cap stocks from the developed markets outside North America. 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 1.2% of total fund assets.

Royal Dutch Shell plc, BP plc and Samsung Electronic are currently the top three holdings of the fund. The fund charges 43 basis points as annual fees.

How might it fit in a portfolio?

The fund is an interesting option for investors looking to invest in products that follow a smart beta strategy. This strategy adopts a “middle path” between passive 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.

The fund gives U.S. investors an opportunity to diversify their portfolios by including international stocks filtered through multiple criteria including relative valuation, price momentum, low volatility and specific market capitalization (read: Buy These 3 Top-Ranked Mid Cap ETFs to End 2014).
 
ETF Competition

There are quite a number of global funds targeting the ex-U.S. space. Vanguard FTSE All-World ex US Index Fund (VEU) is the most popular product in the space with an asset base of $12.3 billion and an average trading volume of 1.1 million shares. The fund charges 15 basis points as fees and has returned 1.4% in the past one year.

Apart from VEU, MSCI ACWI ex US Index Fund (ACWX), SPDR S&P World ex-US ETF (GWL) and ex-U.S. Growth Fund (DNL) are some of the other funds in the space. While ACWX and GWL charge 33 basis points and 34 basis points, respectively, DNL is slightly more expensive with 58 basis points as fees (see all World ETFs here).

Despite the competition, the newly launched fund has a fair chance of making a name for itself if it does manage to sell its product endorsing the “Smart Beta” strategy. In that case it might even outperform its competitors and accumulate a solid asset base.

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