Avoiding JP Morgan In ETFs

May 25, 2012

Trading losses at J.P. Morgan have left some investors looking to exit the stock—here’s how to avoid JPM in ETFs.

The bank, heralded as the one that survived the market collapse of 2008 relatively unscathed, is now in the hot seat since the disclosure of those more than $2 billion in trading losses.

The losses—the full extent of which aren’t yet known, as JP Morgan hasn’t yet completely unwound its position—won’t wipe out the bank’s second-quarter profits. But they certainly put a dent in the company’s financials.

So if you’re not enthused about the prospect of owning J.P. Morgan in your portfolio until the ripples left by the “London whale” have dissipated, I don’t blame you.

I took a look at the ETFs that hold JPMorgan Chase (NYSE: JPM), to help sidestep those funds, if you’re so inclined.

The ETFs with the biggest weightings to JP Morgan are what you’d expect: financial sector ETFs.

Most financial sector ETFs have some allocation to JPM, but iShares’ Dow Jones US Financial Services ETF (NYSEArca: IYG) has the dubious distinction of having the largest exposure, at a shade above 10 percent.

A full list of financials ETFs with >1 percent exposure to JPM is below.


Financials ETF

Data as of 5/22/2012


How about ETFs that don’t focus on financials? Sixty-eight ETFs hold some allocation to JPM larger than 1 percent.

Topping that list is the PowerShares Fundamental Pure Large Value ETF (NYSE Arca: PXLV), with about 4 percent devoted to the firm. But the iShares Morningstar Large Value Index Fund (NYSEArca: JKF) and the Russell Contrarian ETF (NYSEArca: CNTR) aren’t far behind. ETFs targeting value stocks tend to hold between 2 to 3 percent in JPM.

If you’re looking to maintain your broader financials exposure while curtailing exposure to JPM, you have a few options.

The First Trust Financials AlphaDex ETF (NYSEArca: FXO) has just 0.39 percent allocated to the bank, but buyer beware: The fund uses a “black box” index to determine its holdings, and its returns will differ from a market-cap-based fund.

The PowerShares Dynamic Financial Sector Portfolio (NYSEArca: PFI) is a similar, quantitatively driven fund that avoids J.P. Morgan exposure altogether.

If you’re willing to make the change from big-name financials to smaller or more regional names, the SPDR S&P Regional Banking ETF (NYSEArca: KRE) and the PowerShares S&P SmallCap Financials (NYSEArca: PSCF) are other options with zero exposure to J.P. Morgan.

Micromanaging exposure through ETFs isn’t ideal, but if 10 percent exposure to J.P. Morgan had you skittish about touching financials, you’ll be happy to know there are alternatives.


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