Manage Market Risks with Smart-Beta ETFs

“An approach that redistributes risk coming from regions and sectors reduces exposure to frothy markets,” Jillian DelSignore, Executive Director and Head of ETF Distribution at J.P. Morgan Asset Management, said, warning that market cap-weighted indices can increase weights to securities as prices rise without regard for valuations.


Alternatively, more financial advisors and investors have turned to smart-beta index ETFs for return enhancement, risk reduction, improved diversification, specific factor exposure, cost savings and income generation, Zucker added.

For example, Philip Blancato, CEO and President of Ladenburg Thalmann Asset Management, added JPMorgan Diversified Return International Equity ETF (NYSEArca: JPIN) to his portfolio as a way to capitalize on the ongoing quantitative easing in Europe and Japan, lower relative valuations to domestic equities and ongoing economic recovery. Blancato argued that JPIN’s multi-factor indexing methodology can capture more upside while still protecting against potential downsides through risk weighting and the volatility factor.

Related: Liquidity For Smart Beta ETFs Improves

The underlying index diversify risks that are less likely to be rewarded while overweighting areas that are more likely to be rewarded. The underlying customized FTSE Russell index selects components based on a diversified set of factor characteristics, such as relative valuation, price momentum and quality. The enhanced indexing process would allow the ETFs to exclude expensive, low quality companies with poor momentum, which could help the ETFs diminish drawdowns without sacrificing too much from any potential upside of a market recovery.

Along with JPIN, J.P. Morgan offers a suite of Diversified Return Equity ETFs, including the JPMorgan Diversified Return Emerging Markets Equity ETF (NYSEArca: JPEM), JPMorgan Diversified Return Global Equity ETF (NYSEArca: JPGE), JPMorgan Diversified Return US Equity ETF (NYSEArca: JPUS), JPMorgan Diversified Return Europe Equity ETF (NYSEArca: JPEU), JPMorgan Diversified Return Europe Currency Hedged Equity ETF (NYSEArca: JPEH) and JPMorgan Diversified Return International Currency Hedged Equity (NYSEArca: JPIH).

Financial advisors who are interested in learning more about smart beta ETF strategies can watch the webcast here on demand.