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

As is the case with some competing emerging markets indices, JPEM’s underlying index is heavily allocated to China and Taiwan to the tune of a combined 38.4%. However, South Korea is not featured in the new fund or the index because FTSE classifies that country as a developed market. Brazil and South Africa are the other countries with double-digit allocations in the FTSE Emerging Diversified Index.

“We believe that J.P. Morgan has emerging markets capabilities and investment insights that will be attractive to investors, and this product is an important additional step in delivering those capabilities, with an eye toward better risk-adjusted returns,” said Robert Deutsch, global head of ETFs for J.P. Morgan Asset Management, in the statement.  “This ETF is also a good option to provide diversification for client portfolios that are overweight developed markets.”

As is the case with many emerging markets ETFs, JPEM features a large weight (27.4%) to the financial services sector. However, the ETF’s combined allocation to the energy, telecom and utilities sectors – often home to large concentrations of state-run companies – is just 26%. [Dodging SOEs With ETFs]

In the emerging world, ex-state-owned firms typically sport higher valuations and lower dividend yields than their state-controlled peers, but stocks such as Petrobras (NYSE: PBR) and Colombia’s Ecopetrol (NYSE: EC) down an average of 70% over the past two years, there is something to be said for trimming state-run exposure even if mines incurring valuation premiums to do so.

JPEM charges 0.45% per year.

J.P. Morgan’s other ETFs have seen solid starts. The JPMorgan Diversified Return Global Equity ETF (NYSEArca: JPGE), which debuted in June 2014, has over $42 million in assets under management. The JPMorgan Diversified Return International Equity ETF (NYSEArca: JPIN) is just over two months old and has $14.3 million in AUM.