A smart beta exchange traded fund, the JPMorgan Diversified Return U.S. Mid Cap Equity ETF (JPME) debuted on 05/11/2016, and offers broad exposure to the Style Box – Mid Cap Blend category of the market.
What Are Smart Beta ETFs?
The ETF industry has traditionally been dominated by products based on market capitalization weighted indexes that are designed to represent the market or a particular segment of the market.
Investors who believe in market efficiency should consider market cap indexes, as they replicate market returns in a low-cost, convenient, and transparent way.
If you’re the kind of investor who would rather try and beat the market through good stock selection, then smart beta funds are your best choice; this fund class is known for tracking non-cap weighted strategies.
Non-cap weighted indexes try to choose stocks that have a better chance of risk-return performance, which is based on specific fundamental characteristics, or a mix of other such characteristics.
Even though this space provides many choices to investors–think one of the simplest methodologies like equal-weighting and more complicated ones like fundamental and volatility/momentum based weighting–not all have been able to deliver first-rate results.
Fund Sponsor & Index
Managed by J.P. Morgan, JPME has amassed assets over $441.8 million, making it one of the average sized ETFs in the Style Box – Mid Cap Blend. Before fees and expenses, JPME seeks to match the performance of the Russell Midcap Diversified Factor Index.
The JP Morgan Diversified Factor US Mid Cap Equity Index utilizes a rules-based approach that combines risk-based portfolio construction with multi-factor security selection, including value, quality and momentum factors.
Cost & Other Expenses
Expense ratios are an important factor in the return of an ETF and in the long-term, cheaper funds can significantly outperform their more expensive cousins, other things remaining the same.
Annual operating expenses for JPME are 0.24%, which makes it on par with most peer products in the space.
It has a 12-month trailing dividend yield of 1.84%.
Sector Exposure and Top Holdings
While ETFs offer diversified exposure, which minimizes single stock risk, a deep look into a fund’s holdings is a valuable exercise. And, most ETFs are very transparent products that disclose their holdings on a daily basis.
Representing 12.2% of the portfolio, the fund has heaviest allocation to the Industrials sector; Information Technology and Healthcare round out the top three.
Looking at individual holdings, Ciena Corp Common Stock (CIEN) accounts for about 0.56% of total assets, followed by Lumentum Holdings Inc (LITE) and Apa Corp Common Stock (APA).