JP Morgan takes the traditionally passive to active in Europe

This article focusses on JPMAM’s new European listings. For the new US equivalents, please see this article.

JP Morgan has launched three actively-managed corporate bond ETFs and one actively-managed Emerging Markets Environmental and Social Governance (ESG) ETF. The four new ETFs are now available on the London Stock Exchange Deutsche, Boerse Xetra and Borsa Italiana.

  • EUR Corporate Bond Research Enhanced Index UCITS ETF (JREB)
  • EUR Corporate Bond 1-5yr Research Enhanced Index UCITS ETF (JR15)
  • USD Corporate Bond Research Enhanced Index UCITS ETF (JRUB)
  • Global Emerging Markets Research Enhanced Index Equity (ESG) UCITS ETF (JREM)

JREB, JR15 and JRUB offer an actively-managed alternative to the usually passive corporate bond market. Traditionally, corporate bond ETFs replicate the weighting of its index which is determined by the volume of debt outstanding. By introducing an actively-managed twist, the range of ETFs take in to consideration whether the return is inline with the amount of credit risk the investor is undertaking.

The selection criteria for the ETFs will involve identifying the more attractive debt issuers depending on a risk-adjusted basis. With the portfolios maintaining index-like characteristics, the ETFs take a more overweight position for the “attractive” issuers, and underweight position for the “less attractive” issuers.

JREB will be benchmarked against the Bloomberg Barclays Euro Aggregate Corporate Index (Total Return) Index. JR15 will be benchmarked against the Bloomberg Barclays Euro Aggregate Corporate 1-5 Index (Total Return) Index and JRUB will be benchmarked against the Bloomberg Barclays US Corporate Investment Grade Index (Total Return) Unhedged Index. All three ETFs will have a Total Expense Ratio (TER) of 19 basis points.

The emerging markets ETF also being launched, JREM, is joining the already launched active equity REI suite which was announce back in October. JREM is benchmarked against the MSCI Emerging Market Index and has a slightly more expensive TER of 30 basis points.

Taking a similar approach as the corporate bond ETFs, the investment team take an overweight approach for the more “attractive” emerging market stocks. Additionally JPMAM also integrates an ESG screener which will remove all companies involved in controversial sectors such as weapons and tobacco.

Bryon Lake, Head of International ETFs at JPMAM, said in a statement: “In speaking to clients, they want the benefits of passive investing and ETFs but acknowledge that investment grade indices have their limitations. Offering attractively priced investment grade credit active capabilities, in the ETF wrapper, provides European investors with an interesting alternative.”

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