ETF Filing: JP Morgan Plans Single Factor Funds

Proposed ETFs will target individual factors.

J.P. Morgan has filed for five domestic ETFs that will target specific factors. Each will track a benchmark derived from the Russell 1000 Index, which includes the 1,000 largest U.S. stocks by market capitalization.

Interestingly, the funds’ methodologies pay special attention to sector allocations in the interest of diversification, but the treatment of sectors varies with the targeted factor of each fund.

The JPMorgan U.S. Dividend ETF will track an index designed to cover the stocks with the highest dividend yields over a rolling 12-month period in each sector, and weights them within their respective sectors in such a way as to diversify risk.

The JPMorgan U.S. Minimum Volatility ETF will track an index that looks at volatility from a sector and an individual security perspective. The methodology seeks to balance the goal of achieving low overall portfolio volatility while ensuring diversification, and uses an optimization process to achieve its objectives. Sector weightings are adjusted based on their historical volatility and their correlation with each other. Individual stocks are similarly weighted in such a way as to minimize volatility and high concentration in single securities, according to the prospectus.

The JPMorgan U.S. Momentum Factor ETF tracks an index that targets the stocks of companies that have had above-average recent risk-adjusted returns relative to the other stocks in the selection universe. The sectors are weighted by market capitalization, but the stocks in those sectors are weighted with the goal of ensuring diversification.                                        

The JPMorgan U.S. Quality Factor ETF targets companies with high exposure to the quality factor as determined by their profitability and solvency levels and their quality of earnings. As with the momentum fund, sectors are weighted by market capitalization, while individual security weightings within those sectors are driven by diversification objectives.

The JPMorgan U.S. Value Factor ETF targets the relative valuation factor and companies that exhibit attractive valuations as indicated by their price-to-book, price-to-earnings, dividend yield and free-cash-flow metrics. Again, sectors are weighted by market capitalization, while individual security weightings are intended to optimize diversification within those sectors, the prospectus said.

Although J.P. Morgan has a full lineup of multifactor funds, single-factor funds offer investors more precision to tilt or customize their portfolios toward specific factors.

The filing did not include tickers, expense ratios or a listing exchange.

Contact Heather Bell at [email protected]