J.P. Morgan’s New EM ETF Challenges Conventional Rivals

There is no dearth of emerging markets exchange traded funds featuring large, if not excessive exposure to state-controlled enterprises, many of which hail from the energy and financial services sector.

While Chinese banks and Latin American energy giants usually rank among the largest companies in their respective countries, investors are looking for more from emerging markets ETFs. A growing number of fund providers are taking approach, helping investors dodge the risks associated with state-run firms will still offering ample exposure to a possible rebound in developing world equities. [A New Spin on EM ETFs]

Add J.P. Morgan Asset Management to that list. The ETF issuing arm of the venerable Wall Street bank introduced the JPMorgan Diversified Return Emerging Markets Equity ETF (NYSEArca: JPEM) Thursday, marking the third ETF the company has brought to market since June 2014.

“JPEM addresses drawbacks inherent in market cap-weighted indices, specifically excessive risk concentrations and a large number of securities with unattractive characteristics,” according to a statement issued by J.P. Morgan Funds.

The new ETF tracks the FTSE Emerging Diversified Factor Index, a strategic beta index that seeks to mitigate regional and sector risk by using “a multi-factor stock filter to rank and select stocks based on value, quality and momentum.”

“The index is designed to reflect the performance of emerging market securities representing a diversified set of factor characteristics. Constituents are selected based on a composite factor score. The composite factor spans Value, Price Momentum Earnings Revisions and Quality characteristics,” according to FTSE.