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JP Morgan Asset Management launches fixed income ETF trio

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JP Morgan Asset Management (JPMAM) is launching three new fixed income ETFs in Europe, including an innovative Emerging Markets Debt strategy.

JPMorgan ETFs (Ireland) ICAV – USD Emerging Markets Sovereign Bond UCITS ETF (JPMB), JPMorgan ETFs (Ireland) ICAV – USD Ultra Short Income ETF (JPST), and JPMorgan ETFs (Ireland) ICAV – BetaBuilders Eur Govt Bond 1-3yr UCITS ETF (JE13) will list on the London Stock Exchange on the 22 February 2018.

JPAM says that further European listings will follow in due course. “As part of the continued growth and evolution of our ETF business, we’re pleased to be launching our first fixed income ETFs in Europe, offering investor’s access to our well-established fixed income expertise,” says Bryon Lake, International Head of ETFs at JPMAM.

“We’re focused on launching products which will serve specific investor needs. Sophisticated investors, across Europe, are saying they want to see innovation in the fixed income arena whether that be our beta builder, smart beta and/or active capabilities.”

“Fixed income ETFs continue to be amongst the fastest growing areas of the ETF industry, a momentum which we expect to continue as these products mature and evolve. Fixed income ETFs offer lower-cost, convenience, transparency and intra-day access and can be used to help build more robust portfolios and solve for a variety of investment needs,” concludes Lake.

The JPMorgan USD Emerging Markets Sovereign Bond ETF will track the investment results of a newly created bond index, JPM Emerging Market Risk-Aware Bond Index, created by JPMAM’s Quantitative Beta Strategies team and published by JPMorgan’s Investment Bank. Derived from the long-established flagship JPMorgan EMBI Global Diversified Index, JPMB provides exposure to USD denominated sovereign debt across emerging markets. 
 
Niels Schuehle and Eric Isenberg, co-portfolio managers of the JP Morgan USD Emerging Markets Sovereign Bond ETF, say: “Investors who embraced the smart beta approach to investing in equities are increasingly aware of the inadequacies of their traditional fixed income benchmarks. We expect alternatively weighted fixed income strategies to be a significant growth area for bond investors.”

In explaining the rationale behind JPMB’s rules-based strategy, Schuehle and Isenberg say: “The index construction seeks to address three key considerations of investors in emerging market sovereign debt.  Namely investability, tail/event risk, and accessing the credit component of emerging market debt.  We seek to reduce risk by screening out countries that may be at greater risk of default.”

“The index is then weighted to provide clients with more consistent risk exposure to EM credit over time.  The result is a product that provides investors improved access to the credit component of the asset class without exposure to the riskiest countries” concluded Schuehle and Isenberg. The ETF aims to track the benchmark and will have a total expense ratio (TER) of up to 39 basis points.

The JPMorgan USD Ultra Short Income UCITS ETF will seek to provide diversified exposure to very short maturity bonds and debt instruments across investment-grade corporate bonds and government debt.  The strategy will take a conservative approach in order to mitigate volatility and limit duration exposure. The ETF will seek to target portfolio duration of less than one year. While the strategy can invest across sectors, the 5-strong investment team – led by David Martucci, Global Head of the JP Morgan Global Liquidity Managed Reserves team and portfolio manager – will primarily focus on corporate and investment grade credit.

“Managing liquidity is a key priority for a number of our clients.  This strategy takes a similar approach to a money market fund, in terms of having a foremost focus on capital preservation but it also incrementally extends maturities to generate slightly higher returns relative to money market funds, whilst still keeping a discipline on risk management. Tapping into a long-standing investment capability within our Global Liquidity offering, making this strategy available in an ETF provides another investment option to meet our clients’ evolving needs,” says Lake. The ETF has a return target of 0.40-0.60 per cent over Money Market Funds and a total expense ratio (TER) of up to 22 basis points, waived to 18 basis points until 28 February 2021.
  
The JPMorgan BetaBuilders Eur Govt Bond 1-3yr UCITS ETF is also designed by JPMAM’s Quantitative Beta Strategies team, and aims to track the J.P. Morgan EMU Government Bond 1-3 Year Index and will have a TER of up to 10 basis points. “For those investors in search of a defensive play and portfolio diversifier, who may be increasingly concerned about an interest rate rise in an environment of potentially rising rates, JPMorgan BetaBuilders Eur Govt Bond 1-3yr UCITS ETF offers a cost-efficient, liquid and transparent way to access relatively short-duration fixed income,” says Massimo Greco, Head of European Funds at JPMAM.

JPMAM currently has five ETFs in its International ETF product suite. In November 2017, JPMAM listed its first two European ETFs on the London Stock Exchange: JPMorgan Equity Long-Short UCITS ETF (JELS) and JPMorgan Managed Futures UCITS ETF (JPMF). You can read more about JPMAM’s full ETF range here including the ETFs risk profiles.

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