J.P. Morgan begins its push into ETFs

The firm's first-ever exchange-traded fund exploits the combined efforts of four factors.

Robert Goldsborough 21 June, 2014 | 12:29AM

Earlier this week, J.P. Morgan Asset Management rolled out its first-ever exchange-traded fund in the United States, a passively managed global-equity-oriented strategic beta ETF that tracks an FTSE index and taps four separate return factors.

The new ETF, JPMorgan Diversified Return Global Equity ETF JPGE, is a strategic beta fund whose index weights stocks from around the world based on four factors: value, size, momentum and low volatility. Strategic beta funds have gained in popularity and are supported by academic research.

The new fund tracks the FTSE Developed Diversified Factor Index, a rules-based benchmark that J.P. Morgan Asset Management developed in conjunction with FTSE Group. The theory behind the new fund is that J.P. Morgan believes indexes that follow traditional market-cap weighting or that focus on single factors are biased toward equities that are overvalued. To that end, the index considers relative valuation, positive price momentum, low volatility and specific market capitalization, and also aims to equally diversify risk across global regions and industries. As a result, the index weights sectors fairly evenly, with weightings of between 7.5% and 13.0% for each sector.

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Robert Goldsborough

Robert Goldsborough  Robert Goldsborough is an analyst covering equity strategies on Morningstar’s manager research team.