J.P. Morgan Asset Management has unveiled two new currency-hedged exchange traded fund adaptations of its Diversified Return Europe and International Equity offerings.
The JPMorgan Diversified Return Europe Currency Hedged Equity ETF (NYSEArca: JPEH) and JPMorgan Diversified Return International Currency Hedged Equity (NYSEArca: JPIH) began trading Monday, April 4, according to a press release. Both JPEH and JPIH have a 0.49% net expense ratio.
The two new strategic- or smart-beta ETFs track customized indices that try to take a risk-managed approach to investing that could help investors ride the upside while diminishing drawdowns in a falling market.
The underlying indices diversify risks that are less likely to be rewarded while overweighting areas that are more likely to be rewarded. Specifically, JPEH’s the underlying index utilizes a top-down approach in risk allocation to equally distribute the portfolio’s risk across 10 sectors, and JPIH equally distributes its portfolio risk across 40 regional sectors. The two funds include a bottom-up four-factor ranking process, which screens and ranks components by value, size, momentum and low volatility factors. The alternative indexing methodology can provide lower risk access to equities than cap-weighted indices and add further diversification benefits.[related_stories]
The top-down and bottom-up approach mirror the same strategy implemented by the JPMorgan Diversified Return Europe Equity ETF (NYSEArca: JPEU) and JPMorgan Diversified Return International Equity ETF (NYSEArca: JPIN). JPEU includes a 25% tilt toward the United Kingdom, along with about 75% Europe ex-U.K. JPIN includes about an equal four-way breakdown in the U.K., Japan, Europe ex-UK and developed Asia ex-Japan.
However, unlike JPEU, and JPIN, the newly minted JPEH and JPIH employ a currency hedge to diminish foreign exchange risks. JPEH tracks the FTSE Developed Europe Diversified Factor 100% Hedged to USD Index, which hedges out the European currency exposure, and JPIH tracks the FTSE Developed ex-North America Diversified Factor 100% Hedged to USD Index, which hedges out international currency exposure. Both indices were constructed based on J.P. Morgan’s active insights and risk management expertise.
“As volatility and currency risk continue to worry investors, clients are increasingly turning to our strategic beta products for a new approach to address the drawbacks of market cap-weighted indices.” Robert Deutsch, Global Head of ETFs for J.P. Morgan Asset Management, said in a press release. “We are thrilled to expand our investment capabilities with currency-hedged ETFs, complementing our existing strategies and offering clients more choices.”