New faces series: JP Morgan enters the ETF fray

As befits such a storied name in the financial world as JP Morgan, the entry of its asset management arm into the European ETF space was accompanied by much hoopla.

Early last week, JP Morgan Asset Management (JPMAM) announced it would be listing its first-ever European ETFs imminently but that wasn’t the only big news. The JPM Equity Long-Short UCITS ETF and the JPM Managed Futures UCITS ETF between them are, as their names suggest, both actively managed ETFs.

The company claimed they represented the “democratisation of hedge funds” but it is also fair to say they also represent a statement of belief on the part of JP Morgan about where the ETF market in Europe is heading.

JP Morgan already runs 13 ETF product offerings in the US with over $2.2bn of assets under management.

These are active funds, or more precisely, they fit into what JP Morgan calls its alternative beta strategies bucket, a set of strategies that have been designed by the company’s quantitative beta strategies team led by Yazann Romahi, which has been working on such concepts for more than a decade.

“We’re looking to bring the same benefits of diversification, reduced overall portfolio volatility and higher risk-adjusted returns to the ETF wrapper through the launch of these two ETFs,” says Romahi.

“This is intellectual property, that we have developed over the last number of years,” says Bryon Lake, the international head of ETFs at JPMAM. “We are now taking this active capability and delivering it through the ETF wrapper. What goes inside of that is a huge opportunity for JP Morgan to differentiate.”

Lake said that clients were worried about three main issues at present: correlation between asset classes, the fact that markets look expensive and finally, that it was hard to find alpha in the current climate.

The strategies behind the two new ETFs are “designed specially to answers these three concerns,” he said.

“To help them fund correlation, to help them provide tail risk in case markets get a little bit rocky and to help them generate alpha from their portfolio.”

The fund details

  • The JPM Equity Long-Short ECITS ETF will seek to provide long-short exposure to factors like value, quality, and momentum within developed global equity markets in a liquid and transparent vehicle. The portfolio will be constructed by taking long and short positions in individual equity securities and will be built using a systematic, rules-based investment approach
  • The JPM Managed Futures UCITS ETF will seek to provide systematic exposure to carry and momentum factors across four asset classes: equities, fixed income, currency and commodities. The strategy will also be constructed bottom-up by taking long and short positions in futures across the asset classes with the goal of providing returns that are uncorrelated to traditional asset classes.

The two new funds represent merely the first step for JP Morgan in the European ETF space, and Lake makes it clear that more innovation and creative responses to the challenge of providing European ETF investors with a whole range of active – or strategic bets – ETF products will be forthcoming.

“We’re leveraging the ETF technology – the wrapper – and using that as our outlet,” he says. “We’re very excited about our strategies. They are firmly within the alternative beta space. And they are the only ones of their kind in the marketplace.”

He adds that the two ETFs represent the first wave of ETF listings and are the next step in the company’s commitment to building out its active, strategic beta and alternative beta ETF capabilities.

More details on the funds will be released in due course when they list in London, including what fees that will be involved.

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