(Boursier.com) — J.P. Morgan Asset Management (JPMAM), currently the largest provider of actively managed ETFs, today expands its suite of Research Enhanced Index (REI) equity ETFs with the launch of two sustainable active 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)
Both ETFs meet the requirements of European standards for benchmarks aligned with the Paris Agreement, and they are based on a best-in-class approach. They are categorized according to Article 9 of the European Union SFDR regulation.
What is the story behind JPMAM’s REI equity ETF lineup?
JPMAM’s REI equity portfolios sit at the intersection of active and passive management. JPMAM’s REI active equity strategies aim to enhance index returns by capitalizing on JPMAM’s analytical and management capabilities. JPMAM’s REI equity managers have access to research from more than 90 analysts, covering approximately 2,500 stocks around the world. They then use this information to decide whether to allocate slight overweights in stocks they find interesting and underweight those they consider less interesting, relative to a benchmark.
With a proven investment process spanning over 30 years, JPMAM’s range of REI shares is now the broadest range of active UCITS ETFs available.
How is JPMAM developing its range of REI equity ETFs?
JPMAM has partnered with MSCI to custom design two sustainable Article 9 compliant indices. These indices, designed for clients, adopt an inclusive “Best-in-class” approach while respecting the index criteria reference aligned with the Paris Agreement. Controversial sectors and companies, such as fossil fuels, gambling, tobacco and companies violating the UN Global Compact, were excluded from both indexes. In order to meet the criteria for alignment with the Paris Agreement, global benchmark indices as well as active ETFs will present greenhouse gas emissions 50% lower than the reference universe. Additionally, they will reduce their carbon emissions by 7% per year on average, while leveraging JPMAM REI Stock’s proven active investment process to select companies that will perform the best over time.
JPMAM’s REI SRI equity strategy, aligned with the Paris Agreement, will initially be available within a global and regional US investment universe. Initially, the JSEG and JSEU indices will be linked to the MSCI World index and the MSCI USA index, respectively. After the filtering process to take into account ESG leaders, exclusions and adjustments linked to alignment with the Paris Agreement, the overall portfolio is expected to comprise between 300 and 350 securities at launch, and the US strategy between 150 and 200 titles.
Both portfolios, while retaining similarities with their respective indices, adopt an approach that goes beyond simple passive management by adopting a bottom-up selection of securities within sectors or industry groups.
This approach aims to generate a high information ratio and cumulative excess returns over time, while taking into account risk management. The forecasted tracking error is expected to be between 0.75% and 1.25%, or less, over time, and the allocation relative to the benchmark is neutral, both regionally and sectorally.
Why launch JSEG and JSEU ETFs now?
Sustainable ETFs have seen significant growth over the past two years, accounting for more than half of ETF flows in Europe. Since the start of 2023, almost 30% of UCITS flows have been directed towards sustainable ETFs (as of June 30, 2023). Thus, the importance given to sustainable development should remain key. Around 30% of global ETF investors intend to increase their ESG ETF allocation by up to 20% over the next 2.5 years (source: Trackinsight Global ETF Survey).
Although most of these flows have been directed towards passive ETFs, it is evident from current market trends that investors are increasingly recognizing the benefits of combining active ESG research with the ETF structure. Indeed, 68% of global ETF buyers use active strategies for ESG ETFs, either purely active or in combination with passive strategies (source: Trackinsight Global ETF Survey).
Alfred Le Léon, Head of ETF Distribution France at JP Morgan AM said: “We are delighted to complement our market-leading Research Enhanced Index equity range by introducing two actively managed sustainable ETFs aligned with MSCI indices. These ETFs meet the EU guidelines for benchmarks aligned to the Paris Agreement and the Article 9 criteria, both at the benchmark and portfolio level.
“Investors are increasingly looking for solutions to achieve their sustainability goals, and our JSEG and JSEU ETFs are designed to deliver a dual benefit: targeting alpha generation in a personalized sustainable business universe by utilizing our REI investment process, while respecting a decarbonization objective consistent with the principles of the Paris Agreement. These new ETFs can serve as a cornerstone for clients looking to implement a global equity strategy or and also complement the existing sustainable ETF investments of clients seeking increased portfolio diversification,” adds Travis Spence.
“The active element of these strategies plays a crucial differentiating role, building on our 30-year track record of consistently generating excess returns at competitive costs, as well as incorporating our active process engagement to ensuring that companies achieve the sustainability objectives of the strategy,” concludes Travis Spence.
Active management
JSEG will be actively managed by Piera Elisa Grassi, Sebastian Wiseman and Raffaele Zingone, and will have a Total Expense Ratio (TER) of 25 basis points. JSEU will be actively managed by Raffaele Zingone and Piera Elisa Grassi, and will 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 of $9.8 billion in assets under management (as of June 30, 2023). JSEG and JSEU will be listed on the LES, Deutsche Börse Xetra, SIX and Borsa Italiana.
JPMAM, currently #1 in YTD flows of active ETFs globally (as of June 30, 2023, Bloomberg), offers UK and European-based investors access to 8 research-enhanced index equity ETFs spanning different regions, with over $7 billion in assets under management (as of June 30, 2023).