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JP Morgan’s ETF debut could be a game-changer…

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In the first of a new column series for etfexpress and Wealth Adviser, Allan Lane, founder of Algo-Chain writes on the recent launch of the JPM BetaBuilders US Equity UCITS ETF (BBUS LN) with a TER of 0.04 per cent…

Just think about it for a moment, it has been over 20 years since the ETF industry put its hat into the ring, and yet it has been only recently that we have been talking about JP Morgan’s entry into the field.  But I believe this latest ‘lowest cost’ ETF launch will change the narrative for quite some time to come.
 
Firstly though, let’s get the basic facts out of the way. This equity ETF aims to track the Morningstar US TME Index, which at the time of writing constitutes approximately 600 Large & Mid Cap US stocks, amounting to the top 85 per cent from the available universe in terms of market cap.  For the service offered by JP Morgan to do this on your behalf they will charge you a fee of 0.04 per cent per year.  Working out the average annual management fee per stock does seem to show an embarrassingly low number, you might say one of the side benefits that come with the ‘job lot’ approach of passive investing.
 
Looking at the sector breakdown as shown in JP Morgan’s brochure, it is quite clear this aims to compete with funds looking to either track the S&P 500 or the MSCI USA Index.  Yes, there are small differences between them, for example Morningstar’s index currently has a slightly higher allocation to the tech sector, but as we all know that cuts both ways as experienced during the Q4 2018 tech sell-off.
 
Every product needs to come with a good story, and there is no better story than the one where the provider has the ‘lowest fees’ bragging rights.  Ironically with so much at stake, don’t be surprised to read the views of many analysts who will give you chapter and verse why the S&P 500’s sector breakdown is or isn’t superior to that of Morningstar’s TME Index, or indeed MSCI’s USA Index.  Yet in the world of budget-line investing there aren’t enough spare revenues to get the full alpha treatment, so it will be interesting to see how this ETF Analyst eco-system plays out.
 
If the truth be told I know of no scientific reason that would allow my own understanding of how market factors behave across economic cycles to favour one of these US indexes over another. Personally, if you are going for mainstream US equity exposure, I see this index as good a choice as any.  What I do know though is that JP Morgan’s shrewd decision to package a number of their alternative investment strategies into an ETF wrapper, while also parking their tanks on the lawns of BlackRock & Vanguard, tells me JPM has already reached the point of no-return in its commitment to be a serious player in the ETF space.

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