Today, J.P. Morgan rolled out an actively managed exchange-traded fund that targets China’s markets. The JPMorgan Active China ETF (JCHI) is actively managed and can invest in a wide range of securities that are economically tied to China, according to its prospectus.
The fund has an expense ratio of 0.65% and lists on the NYSE Arca.
"The launch of the JPMorgan Active China ETF marks an exciting new time for investors," said Li Tan, one of JCHI’s portfolio managers. "Backed by the expertise of our Greater China research team, JCHI offers investors access to long-term capital appreciation potential in some of China's fastest-growing industries."
JCHI’s managers will primarily be advised on stock selection by research analysts on J.P. Morgan’s Greater China team, which is a part of its emerging markets and Asia-Pacific equities team. The Greater China team includes 26 members, including 17 research analysts averaging 17 years of experience among them.
JCHI relies on a bottom-up approach to select stocks and also takes into consideration macro- and policy-related data in the stock selection process.
The research analysts will evaluate companies to determine their five-year expected returns and what the prospectus describes as their “longer-term business growth characteristics and qualitative factors.” JCHI’s methodology also notes that holdings will be scrutinized through an ESG lens, though the managers have significant leeway in how they use such assessments.
Ultimately the portfolio will include 40-70 securities.
China ETFs in Perspective
In February, the International Monetary Fund published an outlook for China that notes the country’s economy is expected to grow 5.2% this year after dropping its COVID-19 restrictions.
However, the same document warned that gross domestic product is expected to decline annually going forward through 2028 due to the country’s struggling real estate sector, its shrinking population and stalling productivity growth. The IMF warns that China must enact better macroeconomic policies and structural reforms to fully bounce back from the pandemic and encourage growth.
Given that perspective, investors may be more interested in active strategies that can be nimble than in passive strategies to avoid pitfalls in a stock market. Additionally, last year, passively managed China ETFs underperformed relative to U.S. markets.
The largest ETF covering China is the passively managed iShares MSCI China ETF (MCHI), with $8.2 billion in assets under management. It was down 23% last year.
The largest actively managed China equity ETF is the $100.3 million Rayliant Quantamental China Equity ETF (RAYC). It relies on quantitative and fundamental models to select its holdings and has an expense ratio of 0.80%. It was down 32% in 2022.
The next-largest fund covering the space is the Matthews China Active ETF (MCH), which has $33.8 million in assets and an expense ratio of 0.79%. It launched last year.
Essentially, JCHI is the first actively managed China ETF to be offered by a globally known brand, which suggests it could have an easier time gathering assets than existing products.
Contact Heather Bell at [email protected]