A Smart-Beta, Small-Cap ETF to Help Investors Cope with Volatility

Rounding out its line of Diversified Return multi-factor ETFs, J.P. Morgan added a small-cap strategy to help investors gain exposure to smaller companies with potentially less volatility.

On Wednesday, J.P. Morgan launched the JPMorgan Diversified Return U.S. Small Cap Equity ETF (NYSEArca: JPSE). JPSE has a net expense ratio of 0.39%.

JPSE will try to reflect the performance of the Russell 2000 Diversified Factor Index, which is comprised of small-cap equity securities in the U.S. selected based on a rules-based proprietary multi-factor selection process that screens for relative valuation, momentum and quality. Stocks are also weighted to diversify risk across individual equity securities. According to J.P. Morgan, this process has historically helped drive strong performance.

“FTSE Russell market research indicates that investors are looking for index tools and ETFs based on leading benchmarks to help them pursue a wide range of their objectives, including lower volatility, return enhancement and diversification” Ron Bundy, CEO North America Benchmarks at FTSE Russell, said in the press release. “Our Russell 2000 Diversified Factor Index is designed to deliver these benefits in a rules based and transparent manner.”


Moreover, the fund’s screen process should help diminish risk or exposure to more volatility small-cap securities to help bolster long-term, risk-adjusted returns. The underlying index diversify risks that are less likely to be rewarded while overweighting areas that are more likely to be rewarded.