Today J.P. Morgan is rolling out an actively managed ETF that targets the “ultra-short-term” portion of the USD-denominated investment-grade debt space. The stated goal of the JPMorgan Ultra-Short Income ETF (JPST) is to provide current income while achieving low volatility of principal, according to the prospectus.
JPST comes with a net expense ratio of 0.18% and is listed on the Bats exchange, which is owned by ETF.com’s parent company, CBOE.
"One capability that is very strong for us at J.P. Morgan is our liquidity platform. We manage almost $500 billlion in liquidity. We are also really proficient in a space we call ‘managed reserves,’" said Joanna Gallegos, the firm's head of ETF product development. She notes the product is the "next step out" for investors seeking more yield than what would normally be offered in a prime money market fund.
The new ETF can invest in fixed-, variable- and floating-rate debt, including corporate issues, asset-backed securities and mortgage-related debt as well as U.S. government and agency debt such as U.S. Treasuries. And although the fund generally only invests in USD-denominated securities, those can include securities from foreign issuers.
According to Gallegos, JPST is designed for "reserve cash," or money that an investor is looking to invest with a time horizon of six to nine months. She notes that J.P. Morgan is approaching the fund's management from the perspective of a liquidity manager more than a bond manager. That, she says, is one of the key differences between JPST and what J.P. Morgan sees as its primary competitors: the iShares Short Maturity Bond ETF (NEAR) and the PIMCO Enhanced Short Maturity Active ETF (MINT). Both funds invest in similar types of short-term debt securities as those held by JPST.
"We have a very disciplined and conservative credit process," Gallegos said, adding that J.P. Morgan comes to the risk management aspect of the fund from a liquidity mindset rather than a bond mindset.
Because of the nature of the debt securities it covers, JPST is expected to have a fairly strong tilt toward the banking industry. Typically, more than 25% of the fund’s portfolio will be invested in securities issued by the banking industry, the prospectus said. JPST also targets a duration of one year or less, but reserves the right to extend that duration beyond a year in special circumstances, such as extreme interest-rate and spread volatility.
The ETF’s managers allocate its portfolio across sectors based on tactical considerations, selecting sectors and securities that it expects will perform well. Individual securities are selected after evaluating them using a risk/reward analysis that takes into account income, interest rate risk and credit risk, as well as legal and technical transaction issues, the prospectus noted.
Contact Heather Bell at [email protected].