In this latest “In the Know” segment, ETF Trends CEO Tom Lydon discusses the value of being an observer of the factor space and the importance of screening large firms, with Josh Rogers, Beta Specialist, at J.P. Morgan Asset Management.

Rogers said the value factor has been a popular play in 2019, adding that momentum and low volatility factors have recently risen higher in terms of their correlation.

“So, what that means is they’re just moving more and more together,” Rogers said. “So, what’s pretty interesting about that is usually we see that that’s somewhat of a sign for Min Vol to maybe have a slight turn, and we’ve seen that more recently.”
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Rogers explained how it may not be the right time for investors to take on the expensive names because of this if they are looking to be more defensive. Instead, quality could be the better play, and J.P. Morgan’s JQUA is the quality ETF that works. It looks at companies with strong balance sheets, profitability, and financial solvency, which is excellent for late-cycle investors.

Shifting the focus to the Fed, Lydon said things have shifted since last year. As Rogers explained, many investors believed rates were on the rise coming into 2019. However, rates have instead come down dramatically across the board. As a result, short-term type products have gained popularity.

“I think that the nice thing about that is we know that duration helps you when equity markets are selling off, and so especially for folks, again, who are positioning for a little bit more defense, that taking on a little bit more duration could make sense,” Rogers said.

Looking At Fixed Income

Looking at what’s happening in fixed income, Rogers points out a product launched last year, JPMorgan U.S. Aggregate Bond ETF (JAGG). It tries to give anyone the Agg type of exposure while screening for the best issuers.

The power from all of this has led to triple B names like Ford (F) and AT&T (T) start to be downgraded. It’s the thoughtful screenings that can make sense, particularly if the equity markets slide.

As far as working this into a portfolio, Rogers believes that it’s entirely possible, and being able to offer these types of strategies is a win-win for investors. The systematic ones at a low price point, in particular, allow for such a stable outlook in that regard.

Moving onto alternatives, Rogers believes they’ve been down at the bottom for quite some time.

Related: In the Know: Market Themes and Opportunities 

“I think a lot of folks have been probably not super happy, especially when you see equity markets just soaring higher and higher,” Rogers said. “Alts have been an unnecessary kind of component in the portfolio. But again, as we look towards late cycle, what do you want? Things that hopefully give you some level of diversification. So, we actually have built out a suite of ETFs that are actually really, truly what we think our institutional-grade alternative products but in the ETF wrapper.”

Additionally, Rogers added how its JPMorgan Managed Futures Strategy ETF (JPMF) is the ETF talked about often as a managed future strategy. It has the benefits of a low-correlated asset class, with everything investors want in a true diversifier at a low price point.

To watch the entire latest “In the Know” show, click here.

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