International exchange traded fund investors may find better diversification and risk-adjusted returns through a smart-beta or strategic-beta index-based ETF.
On the upcoming webcast, Beyond Market Cap Investing: Strategic Beta ETFs, J.P. Morgan Asset Management’s Dr. David Kelly, Chief Global Strategist and Head of Global Market Insights Strategy Team, Robert Deutsch, Managing Director and Global Head of ETFs, Nigel Emmett, Managing Director and Senior Client Portfolio Manager for Global Equities Team, and Timothy Devlin, Executive Director and Client Portfolio Manager on Global Equities Team, help describe the investment environment for the international market and point to strategic-beta index-based strategies to best capture returns.
For example, the JPMorgan Diversified Return Global Equity ETF (NYSEArca: JPGE) tries to reflect the performance of the FTSE Developed Diversified Factor Index, which screens and ranks developed country stocks by value, size, momentum and low volatility factors. [ETF Spotlight: Core Global Equity]
Specifically, the underlying index utilizes a top-down approach in risk allocation to equally distribute the portfolio’s risk across 40 regional sectors, along with its bottom-up four-factor ranking process.
Compared to the iShares MSCI ACWI ETF (NasdaqGM: ACWI), which tracks the MSCI All-Country World Index, JPGE takes a significantly lower position toward U.S. equities – U.S. stocks make up 27% of JPGE, whereas it is 50.7% of ACWI. However, JPGE overweights Japan at 23.2%, compared to ACWI’s 7.2% position. JPGE also takes on a heavier tilt toward Europe and other developed Asian Pacific countries, notably a 8.8% position in Australia.
Moreover, JPGE takes on a more equal-weighted sector position. The J.P. Morgan ETF’s top sectors include consumer goods, consumer services and health care at about 12% each. In contrast, ACWI overweights financials at 21.3% of its portfolio. The
The smart-beta indexing methdology also pushes down JPGE’s market-capitalization exposure to include slightly more nimble mid-sized companies. Specifically, JPGE has a 39.6% weight toward medium-cap stocks and 19.3% in mega-caps, whereas the benchmark MSCI ACWI index includes 52.6% in mega-caps and 12.8% in mid-caps.
For those who have enough U.S. exposure, the recently launched JPMorgan Diversified Return International Equity ETF (NYSEArca: JPIN) tracks the similar methodology a JPGE, except JPIN reflects the performance of the FTSE Developed ex-North America Diversified Factor Index, which excludes U.S. and Canadian stocks. JPIN began trading Friday, November 7.
Financial advisors who are interested in learning more about strategic-beta or smart-beta ETFs can register for the Tuesday, November 11 webcast here.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.