JP Morgan Asset Management has expanded its line-up of ‘Research Enhanced’ active equity ETFs in Europe with two new climate-conscious funds focused on global developed and US stock markets.
Travis Spence, Head of ETF Distribution in EMEA at JP Morgan Asset Management.
The JPMorgan Global Research Enhanced Index Equity SRI Paris Aligned UCITS ETF (JSEG) and JPMorgan US Research Enhanced Index Equity SRI Paris Aligned UCITS ETF (JSEU) have been listed on London Stock Exchange in US dollars and pound sterling, on SIX Swiss Exchange in US dollars, and on Deutsche Börse Xetra and Borsa Italiana in euros.
JSEG and JSEU come with expense ratios of 0.25% and 0.20%, respectively.
JP Morgan’s Research Enhanced ETFs aim to provide similar risk characteristics compared to their performance benchmarks while harnessing insights from the firm’s extensive network of analysts to pursue incremental active management.
The funds take a large number of small active positions – overweighting stocks the analysts find attractive and underweighting those they don’t – thereby seeking modest positive excess returns, compounded over time.
JP Morgan already offers eight Research Enhanced ETFs, collectively housing over $7 billion in assets, which are referenced to conventional, broad market benchmarks focused on stocks from global developed, US, European, eurozone, Japanese, emerging market, China A-share, and Asia Pacific ex-Japan equity universes.
These funds are all classified as Article 8 products under the European Union’s Sustainable Finance Disclosure Regulation (SFDR) as they integrate ESG principles by avoiding violators of international norms as well as companies involved in certain socially and ethically questionable sectors.
The latest two ETFs, however, are the first in the suite to be aligned with the carbon reduction goals of the Paris Agreement and, therefore, are classified as Article 9 products under SFDR.
Investment process
JSEG and JSEU are referenced to performance benchmarks that were developed by JP Morgan in partnership with MSCI and are based on the MSCI World and MSCI USA universes which comprise large and mid-cap stocks from global developed and US equity markets, respectively.
The funds’ performance benchmarks filter their initial universes by removing violators of UN Global Compact principles and companies involved in fossil fuels, gambling, and tobacco. They then select and weight constituents from the remaining universe using an optimization process that complies with the EU’s Paris-aligned benchmark (PAB) requirement by immediately reducing overall greenhouse gas emissions by 50% while pursuing an additional 7% annual decarbonization pathway going forward.
In managing the ETFs, JP Morgan selects companies that are expected to outperform over time, aiming to achieve 0.75%-1.00% in annualized excess returns while maintaining tracking errors of approximately 0.75%-1.25% versus the benchmarks. The funds will maintain compliance with the EU’s PAB requirement at all times.
Commenting on the new listings, Travis Spence, Head of ETF Distribution in EMEA at JP Morgan Asset Management, said: “We’re really excited to be adding to our market-leading Research Enhanced equity platform with two actively managed sustainable ETFs which are aligned to MSCI indices that meet the EU’s PAB guidelines and Article 9 criteria – both at a benchmark and portfolio level.
“Clients are increasingly seeking solutions to meet their sustainability objectives, and JSEG and JSEU are designed to deliver a dual outcome: to outperform a custom universe of sustainable companies by using our Research Enhanced investment process, while achieving a decarbonization objective in line with the Paris Agreement. These new ETFs can be used as building blocks for clients who want to implement a view on either global equity or US equity, as well as serving as a complement to a client’s existing sustainable ETF investments for greater portfolio diversification.
“The active component to these strategies is a key differentiator, based on our 30-year proven track record to deliver consistent excess returns overtime at an attractive fee level, and with the engagement of our active process to ensure companies are meeting the sustainable objectives of the strategy.”