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J.P. Morgan Asset Management expands USD7bn Research Enhanced Index equity ETF platform with two new Article 9 ETFs

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J.P. Morgan Asset Management (JPMAM) has expanded its Research Enhanced Index (REI) equity ETF platform with the launch of two active sustainable ETFs: JPMorgan Global Research Enhanced Index Equity SRI Paris Aligned UCITS ETF (ticker: JSEG)

JPMorgan US Research Enhanced Index Equity SRI Paris Aligned UCITS ETF (ticker: JSEU)

The firm writes that both ETFs meet EU Paris-aligned benchmark requirements and leverage a best-in-class approach. They are classified as Article 9 under EU SFDR regulation.

JPMAM writes that its REI equity portfolios sit at the intersection of active and passive investment management, with the firm’s REI active equity strategies seeking to enhance index returns by leveraging the depth and breadth of JPMAM’s fundamental proprietary research. JPMAM’s REI equity portfolio managers have access to the insights of more than 90 research analysts, covering approximately 2,500 securities globally. The portfolio managers then use this information to decide where to take small overweight positions in names they find attractive and small underweights in the names they find less attractive, relative to an index. Offering a 30-year time-tested investment process, JPMAM’s REI equity range is currently the industry’s largest active equity UCITS ETF range, the firm says.

JPMAM has partnered with MSCI to create a pair of custom Article 9 sustainable indices for clients which adopt a best-in-class inclusionary approach and comply with the EU’s Paris-aligned benchmark (PAB) criteria. Controversial sectors and companies – such as fossil fuels, gambling, tobacco and companies considered to be UN Global Compact violators – have been excluded from both indices and, to fulfil Paris-alignment criteria, both the overall benchmark universe and the active ETFs will have 50 per cent less greenhouse gas intensity than the parent universe, as well as decarbonise by 7 per cent on average, year over year, while leveraging JPMAM’s proven REI active investment process to select the companies that will outperform over time.

JPMAM’s REI equity SRI Paris-aligned strategy will initially be offered both on a global investment universe as well as a US regional universe, the firm says. The starting universe for JSEG and JSEU is MSCI World Index and MSCI USA Index, respectively. Following the filtering of the universe to lean into ESG leaders, exclusions and PAB adjustments, the global portfolio aims to have between 300-350 holdings at launch and the US strategy should have between 150-200 holdings at launch.

Both portfolios, while bearing a resemblance to their respective indices, pivot away from a purely passive approach to embody bottom-up stock selection within sectors or industry groups, to achieve a consistent high information ratio and incremental excess returns compounded over time, as part of a risk managed environment. Tracking error is expected to be between 0.75-1.25 per cent or less over time and the allocation is region and sector neutral to the benchmark.

Sustainable ETFs have seen tremendous growth over the past couple of years, JPMAM writes. “In the past two years alone, sustainable ETFs have captured over half of ETF flows in Europe. Year to date nearly 30 per cent of UCITS flows have gone into sustainable ETFs (as of 30 June 2023). And a continued focus on sustainability is likely to remain in place, with 30 per cent of global ETF buyers expecting to increase their ESG ETF allocation by up to 20 per cent in the next 2.5 years. 

“And while the majority of these flows have been in passive ETFs, if one takes account of current market trends, investors are increasingly realising the benefits of combining active ESG research with the ETF wrapper with 68 per cent of global ETF buyers using active strategies for ESG ETFs, either purely active or in combination with passive.”

Travis Spence, Head of ETF Distribution in EMEA at J.P. Morgan Asset Management, says: “We’re really excited to be adding to our market-leading Research Enhanced Index equity platform with two actively-managed sustainable ETFs which are aligned to MSCI indices that meet the EU’s Paris-Aligned Benchmark 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 REI investment process, while achieving a decarbonisation 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,” says Spence.

“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,” says Spence.

JSEG will be actively managed by Piera Elisa Grassi, Sebastian Wiseman and Raffaele Zingone and have a Total Expense Ratio (TER) of 25 basis points. JSEU will be actively managed by Raffaele Zingone and Piera Elisa Grassi and have a TER of 20 basis points.

With the launch of JSEG and JSEU, JPMAM now offers 18 sustainable investing ETFs – including Article 8 and Article 9 products – with a total AuM of USD9.8 billion (as of 30 June 2023). JSEG and JSEU will be listed on the LSE, Deutsche Börse Xetra, SIX and Borsa Italiana.  

JPMAM writes that currently it is #1 in active ETFs YTD flows globally (as of 30 June 2023, Bloomberg), and now offers UK and Europe based investors access to eight Research Enhanced Index equity ETFs covering different regions, with over USD7 billion in assets under management (as of 30 June 2023).

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