J.P. Morgan AM has today listed JPM China A Research Enhanced Index Equity (ESG) UCITS ETF (Ticker: JREC) on the London Stock Exchange, Deutsche Börse Xetra and SIX, marking the arrival of the industry’s first active China equities ETF and expansion of the firm’s flagship range of active Research Enhanced Index (REI) Equity (ESG) ETFs.
JPMAM’s range of REI ETFs seeks to offer investors active ETFs that can serve as building blocks for core allocations. By seeking positive alpha at a low tracking error, JPMAM’s actively-managed equity ETFs offer an attractive alternative to pure passive investments. The range also leverages JPMAM’s long-standing expertise and established track record (30+ years) in REI investing, based on proprietary research in which JPMAM’s experienced research team, comprising over 90 fundamental career research analysts, provide stock-specific insights to JPMAM portfolio management teams. Using this information advantage, the portfolio managers then take small overweight positions in names they find attractive and small underweights in the names they find less attractive. As a result, JPMAM’s REI portfolios maintain index characteristics while seeking incremental positive excess returns, compounded over time, in a risk-managed environment.
When it comes to onshore Chinese equities, or A-shares, the role of active management, including active ETFs, can play an important part in navigating this deep, liquid, and diverse market, by helping investors to gain exposure to the long-term trends driving the growth potential of China’s onshore market, as the consumption needs of China’s growing middle class continues to expand and evolve.
Moreover, where passive investments may be unable to mitigate the impact of the onshore market’s high turnover, including near-term periods of investor exuberance and pessimism, JREC is instead designed to exploit these market inefficiencies through a long-term investment lens, using local market knowledge as well as a rigorous valuation and ESG framework.
“Despite being one of the largest and fastest-growing economies in the world, investors’ exposure to onshore Chinese equities, remains relatively low. With the average international investor’s total China exposure currently 4.6% of total assets, and a large part of this is likely to be in offshore Chinese equities through emerging markets equity strategies, JREC can help investors find a balance in the representation of Chinese equities in their portfolios. They will now be able to capture China A shares opportunities, in a simple, easy-to-trade and attractively-priced active ETF for the first time.”Olivier Paquier, Head of ETF Distribution in EMEA
While China accounts for around 33% of the MSCI EM Index, the weight of onshore Chinese equities (China A-shares) is only about 5%. However, judging from prior examples of Taiwan and Korea, we expect that onshore Chinese equities will continue to rise in global indices.
“As investors continue to reevaluate their existing allocations, we’re pleased to be able to offer a new active ETF which taps into bottom-up security selection, local knowledge and rigorous active research, while managing index risks – all within a rigorous ESG framework.”Olivier Paquier, Head of ETF Distribution in EMEA
Sustainability is another area where active ETFs can be advantageous compared to passive peers. Particularly so in the case of A-shares, where ESG disclosures in China can often be in Mandarin only. JPMAM’s Mandarin-speaking locally-based analysts are therefore well-placed to delve into the data and actively engage with company management, where necessary.
JREC will integrate the systematic and explicit consideration of ESG factors, which is built into the investment decision-making process from the outset. In addition to ESG integration, JREC will also take the focus on ESG one step further by applying norms- and values-based screening. This means companies involved in certain sectors, like controversial weapons and tobacco, will be excluded. JREC will be benchmarked against the MSCI China A Index.
In addition to the launch of JREC, JPMAM has also listed JPM AC Asia Pacific ex Japan Research Enhanced Index Equity (ESG) UCITS ETF (Ticker: JREA) today, which will be benchmarked against the MSCI AC Asia Pacific ex Japan Index. Both JREC and JREA, classified as Article 8 under the SFDR regulation, are now available on the London Stock Exchange, Deutsche Börse Xetra, and SIX, and scheduled to list on the Borsa Italiana on 22 February 2022.
“Our range of Research Enhanced Index Equity ETFs have been designed to offer investors a cost-effective solution which blends active stock selection with passive index exposure, within a robust ESG framework, making them an attractive option for investors looking to earn incremental excess returns on their equity exposure at low active risk. These ETFs are efficient and flexible tools that will help our clients to complement existing core portfolios, add diversification or implement tactical views,”Olivier Paquier, Head of ETF Distribution in EMEA
JREC and JREA will be managed by Lina Nassar and Sonal Tanna and have a Total Expense Ratio of 40 basis points and 30 basis points, respectively. The two new ETFs join JPMAM’s existing range of REI ETFs (JREE, JREM, JREG and JREU), which is already the largest active equity ETF offering in Europe, with $2.5bn in assets (as of 14/02/22, Bloomberg).
You can read more about JPMAM’s REI (ESG) ETF strategies, including the ETFs risk profiles, here. The value of investments may go down as well as up and investors may not get back the full amount invested. Past performance is not a reliable indicator of current and future results.