JP Morgan Asset Management (JPMAM) is planning to list its first two European ETFs on the London Stock Exchange. The two actively managed liquid alternative strategies, JPM Equity Long-Short UCITS ETF and JPM Managed Futures UCITs ETF, will also be made available to investors across key markets in Europe in due course.
As part of the “democratisation” of hedge fund investing, both ETFs will offer investors exposure to the investment characteristics typical of hedge funds by using alternative beta which extends the concept of beta investing from long-only traditional strategies to include both long and short investing. Alternative beta strategies are rules-based strategies designed to provide access to the portion of hedge fund returns attributable to systematic risks (beta) vs. idiosyncratic manager skill (alpha), using a methodical approach.
The JPM Equity Long-Short UCITS ETF will seek to provide long-short exposure to factors like value, quality, and momentum within developed global equity markets in a liquid and transparent vehicle. The portfolio will be constructed bottom-up by taking long and short positions in individual equity securities and will be built using a systematic, rules-based investment approach.
The JPM Managed Futures UCITS ETF will seek to provide systematic exposure to carry and momentum factors across four asset classes: equities, fixed income, currency, and commodities. The strategy will also be constructed bottom-up by taking long and short positions in futures markets across these asset classes with the goal of providing returns that are uncorrelated to traditional asset classes.
Both strategies are designed to provide access to the potential diversification and risk-return efficiency for which hedge fund strategies are valued—in a more liquid, transparent and cost-effective format. The strategies were designed by JPMAM’s Quantitative Beta Strategies team, which is a team of quantitative research analysts and portfolio managers focused on factor-based investing across strategic beta (long-only) and alternative beta (long-short) strategies. Yazann Romahi, PhD, is the Chief Investment Officer of Quantitative Beta Strategies at JPMAM, and has been focused on beta philosophy research and development for more than a decade. For example JPMorgan Funds – Systematic Alpha Fund was one of the first strategies to make the concept of alternative beta investable upon its launch in 2009.
Romahi says: “When we started doing research on alternatives more than a decade ago, we built on the academic research which suggested that a large portion of hedge fund returns could actually be accessed using a bottom-up, systematic, rules-based approach – the same way traditional passive investing in long-only markets works. Now we’re looking to bring the same benefits of diversification, reduced overall portfolio volatility, and higher portfolio risk-adjusted returns to the ETF wrapper through the launch of these two ETFs.”
Romahi’s team has been at the forefront of alternative beta investing, which has enabled a wider audience to participate in the diversification benefits of hedge funds and continues to have a transformational impact on alternatives investing.
Bryon Lake (pictured), International Head of ETFs, JPMAM, says: “Providing investors with institutional-quality hedge fund strategies in a cost-efficient, liquid and tradeable ETF wrapper should help to advance the democratisation of hedge fund investing. This first wave of ETF listings is the next step in our commitment to building out our active, strategic beta and alternative beta ETF capabilities, with a view to serving the needs of clients globally. We intend to build on this momentum going into 2018 as we introduce more of JPMAM’s investment capabilities into the ETF vehicle.
“We continually hear from investors that they’re looking for proven strategies that can provide diversification benefits in their portfolios. Both the managed futures strategy and equity long short strategy have historically had a low correlation to equities and bonds. We believe they’ll serve as useful tools to help investors build better portfolios.”
