JP Morgan Debuts Active Small Cap Value ETF

Today, J.P. Morgan Asset Management rolled out an actively managed small-cap value exchange-traded fund that uses the NYSE’s model for nontransparent ETFs. The JPMorgan Active Small Cap Value ETF (JPSV) will generally invest in companies whose market capitalizations fall within the range of those represented in the Russell 2000 Value Index. It is the first nontransparent active ETF to be added to J.P. Morgan’s lineup. 

The fund comes with an expense ratio of 0.74% and lists on the NYSE Arca. 

The pricing is a bit steep, making JPSV one of the most expensive small cap ETFs out there, second only to the $246.4 million Opus Small Cap Value ETF (OSCV), which charges 0.79%.

Small cap value has been doing well this year. The $380 million Invesco S&P SmallCap 600 Pure Value ETF (RZV) is up 10.8% year to date as of March 6, while the $281.3 billion Vanguard Total Market Stock Market ETF (VTI) is up just 6.3% and the $54.6 billion iShares Russell 2000 ETF (IWM) is up 8.2% during the same time period.

JPSV’s investment process looks to focus on companies that have attractive valuations while also demonstrating high quality characteristics such as durable businesses, proven management teams and strong balance sheets, the prospectus says.

The NYSE Active Proxy Model for nontransparent ETFs requires the daily publication of a proxy portfolio with similar factor characteristics and performance, as well as a calculation of the overlap between the proxy and actual portfolios, according to the document.

At launch, the top holdings for JPSV’s proxy portfolio included Selective Insurance Group Inc. at a weight of 2.2%, Comfort Systems USA Inc. at a weight of 1.5% and Patterson Cos. Inc. at a weight of 1.5%.

Although issuers have not been tripping over themselves to launch nontransparent active ETFs, it makes sense that J.P. Morgan would use this format for a small cap fund, which holds securities that could conceivably see their prices distorted by copycat trades or front-runnng. 

JPSV is managed by Lawrence Playford, Jeremy Miller and Ryan Jones with the support of in-house value research analysts that have an average of 20 years of experience, a press release says.

Contact Heather Bell at [email protected]