JP Morgan Asset Management has launched a smart beta US mid cap equity exchange-traded fund on NYSE Arca, bringing its total smart beta diversified return equity ETF offering to eight. The JPMorgan Diversified Return US Mid Cap Equity ETF (JPME) targets the US mid cap equity market through a multi-factor investment process.
Robert Deutsch, Global Head of ETFs for JP Morgan Asset Management.
The ETF attempts to address the flaws of traditional indexing by weighting constituents according to proven drivers of return such as value, quality and momentum. Multi-factor approaches take advantage of historically low correlations between factor exposures to seek a smoother return throughout the business cycle compared to single factor investing.
JP Morgan’s ETF suite utilizes a unique two-step process that equally weights risk across sectors and applies a multi-factor screen which excludes expensive, low quality securities with weak momentum characteristics.
The ETF tracks the Russell Midcap Diversified Factor Index, which is rebalanced on a quarterly basis and was constructed based on JP Morgan’s active insights and risk management expertise.
Robert Deutsch, Global Head of ETFs for JP Morgan Asset Management, said in a statement: “Investors remain wary of rising equity valuations, declining return expectations and slowing economic growth. JPME helps to diversify risk more evenly across the portfolio, in an effort to reduce exposure to volatile sectors and securities. We’ve seen assets continue to rise in US mid-cap ETFs over the past few years and we’re thrilled to offer the opportunity to invest in mid-caps utilizing our innovative approach.”
“We are thrilled once again to work with our valued partner JP Morgan to expand their suite of strategic beta ETFs to help their clients,” added Ron Bundy, CEO of North America benchmarks for global index provider FTSE Russell. “FTSE Russell continues to lead in the important and growing US equity smart beta index space.”
Mid-cap equities may be attractive to investors seeking better growth prospects than large caps as, according to Morningstar, US mid cap equities have grown their earnings on average 3-4% per year over the past decade. Additionally, while their greater sensitivity to market sentiment increases their volatility relative to large caps, mid cap equities are more likely to be trading at a discount to fair value. Lastly, mid-cap companies are frequently the target for mergers and acquisitions with larger companies, and often enjoy substantial share price increases as news regarding a potential deal is released.
As of 16 May 2016 the main sector exposures of the fund are in consumer goods (15.5%), utilities (14.3%), financials (13.2%), industrials (12.6%), technology (11.2%) and health care (11.0%). The fund is well diversified from idiosyncratic risk with over 600 constituents and the largest holding contributing 0.60% weight to the portfolio.
The ETF has a total expense ratio of 0.34%.