J.P. Morgan Asset Management, begun trading its first alternative and actively managed ETF, the JPMorgan Diversified Alternatives ETF (Nyse Arca: JPHF) on Wednesday, September 14, 2016. Here is a synopsis of the new ETF:
|Symbol: JPHF||Exchange: NYSE ARCA|
|Name: JPMorgan Diversified Alternatives ETF||Net Expense Ratio: 0.85%|
The JPMorgan Diversified Alternatives ETF is an actively managed fund which seeks to provide long-term total return.
The Fund will seek to achieve its investment objective by allocating assets across several different investment strategies, including traditional and alternative investment strategies, such as those utilized by certain hedge funds. The strategies identified by the adviser for the Fund fall into the following broad categories: Equity Long/Short, Event Driven and Global Macro Based strategies.
Equity Long/Short: Equity Long/Short strategies involve simultaneously investing in equities (i.e., investing long) that the adviser believes are attractive based on relevant return factors and selling equities (selling short) that the adviser believes are unattractive based on the relevant return factors. Equity Long/Short seeks to profit by exploiting pricing inefficiencies between related equity securities by maintaining long and short positions.
Event Driven: Event Driven strategies seek to profit from investing in securities of companies on the basis that a specific event or catalyst will affect future pricing. For example, merger arbitrage strategies seek to capitalize on price discrepancies and returns generated by a corporate transaction. The Fund may purchase the common stock of the company being acquired and short the common stock of the acquirer in expectation of profiting from the price differential between the purchase price of the securities and the value received for the securities as a result of or in expectation of the consummation of the merger.
Global Macro Based Strategies: Macro based strategies aim to exploit macro economic imbalances across the globe. The macro based strategies may be implemented through a broad range of asset classes including, but not limited to, equities, fixed income, currency and commodities. For example, this strategy may invest in the long-end of the government bond markets with the highest inflation adjusted yields and sell short the long-end of the government bond markets with the lowest inflation adjusted yields. As an alternative example, the strategy may seek to exploit supply and demand imbalances that occur in a given commodity market by utilizing long and short exposures achieved through different derivative instruments.
The Fund will invest its assets based on a systematic investment process for securities selection and asset allocation.
Within these broad strategies the adviser believes that it has identified (and will continue to identify) a set of sources of return present in markets that result from, among other things, assuming a particular risk or taking advantage of a behavioral bias (each a “return factor”). The return factors identified by the adviser include equity based return factors, fixed income based return factors, currency based return factors and commodity based return factors. Each return factor represents a potential source of investment return, and the adviser allocates assets to a subset of return factors based on current investment opportunities. For example, the Fund seeks to achieve a higher return over time when investing in small cap stocks compared to large cap stocks due to the additional risks often posed by small cap stocks. The adviser may allocate assets to this “small cap return factor” by employing a strategy that purchases small cap stocks and shorts large cap stocks in an attempt to capture the risk premium typically associated with investing in small cap companies relative to large cap companies. Additionally, the adviser may gain exposure to a “momentum return factor” by employing a strategy that buys securities with strong positive price momentum and shorts securities with strong negative price momentum. This strategy would seek to exploit a behavioral bias present in the market, in which investors tend to purchase securities that have recently performed well, thereby helping to contribute to continued positive price movement, and sell securities that have recently performed poorly, thereby helping to contribute to continued negative price movement.
Under normal market conditions, the Fund seeks to achieve its investment objective by employing the investment strategies to access certain of these return factors. The adviser believes that, in general, the Fund’s investment returns are attributable to the individual contributions of the various return factors. By employing this return factor based approach, the Fund seeks to provide positive total returns over time while maintaining a relatively low correlation with traditional markets. The exposure to individual return factors may vary based on the market opportunity of the individual return factors. Additional return factors may be identified over time.
The Fund will invest its assets globally to gain exposure, either directly or through the use of derivatives, to equity securities (across market capitalizations), debt securities (including below investment grade and unrated debt securities), commodities (through its subsidiary as described below) and currencies (including in emerging markets). The Fund may use both long and short positions (achieved primarily through the use of derivative instruments). The Fund generally will maintain a total net long market exposure, meaning that the Fund’s aggregate exposure will be greater to instruments that the adviser expects to outperform. However, the Fund may have net long or net short exposure to one or more industry sectors, individual markets and/or currencies based on the adviser’s view of whether a particular sector, market is expected to outperform or underperform.
The adviser will make use of derivatives, including swaps, futures, options, and forward contracts, in implementing its strategies. Under normal market conditions, the adviser currently expects that a significant portion of the Fund’s exposure will be attained through the use of derivatives in addition to its exposure through direct investments. Derivatives, which are instruments that have a value based on another instrument, exchange rate or index, will primarily be used as an efficient means of implementing a particular strategy in order to gain exposure to a desired return factor. For example, in implementing Equity Long/Short strategies and Global Macro Based strategies, the Fund may use a total return swap to establish both long and short positions in order to gain the desired exposure rather than physically purchasing and selling short each instrument. Derivatives may also be used to increase gain, to effectively gain targeted equity exposure from its cash positions, to hedge various investments and/or for risk management. As a result of the Fund’s and the Subsidiary’s (as defined below) use of derivatives and to serve as collateral, the Fund or the Subsidiary may hold significant amounts of U.S. Treasury obligations, including Treasury bills, bonds and notes and other obligations is sued or guaranteed by the U.S. Treasury, foreign currencies in which certain derivatives are denominated and other short-term investments, including money market funds.
The Fund will gain exposure to commodity markets by investing directly in commodity related instruments or indirectly by investing up to 15% of its total assets in the Diversified Alternatives Fund CS Ltd., a wholly owned subsidiary of the Fund organized under the laws of the Cayman Islands (the Subsidiary). The Subsidiary is also advised by the adviser. The Subsidiary will only invest in commodity futures contracts. However, the Subsidiary (unlike the Fund) may invest without limitation in such commodity futures contracts. The Subsidiary is otherwise subject to the same fundamental, non-fundamental and certain other investment restrictions as the Fund.
The amount that may be invested in any one instrument or investment strategy will vary and generally depend on the investment strategies and return factors employed by the adviser at that time. However, there are no stated percentage limitations on the amount that can be invested in any one type of instrument, and the adviser may, at times, focus on a smaller number of instruments. Moreover, the Fund is generally unconstrained by any particular capitalization, style or sector and may invest in any region or country, including emerging markets. The Fund may have both long and short exposure to these instruments. Given the complexity of the investments and strategies of the Fund, the adviser will make use of quantitative models and information and data supplied by third parties to, among other things, help determine the portfolio’s weightings among various investments and construct sets of transactions and investments.
The Fund will purchase a particular instrument when the adviser believes that such instrument will allow the Fund to gain the desired exposure to a return factor. Conversely, the Fund will consider selling a particular instrument when it no longer provides the desired exposure to a return factor. In addition, investment decisions will take into account a return factor’s contribution to the Fund’s overall volatility. In allocating assets, the adviser seeks an approximately equal weight (based on risk terms rather than notional amounts) to its 3 primary strategies over the long term, although the exposure to individual return factors will vary based on, among other things, the opportunity the adviser sees in each individual return factor.
Fund Top Holdings (09/15/16):
|TALEN ENERGY CORP||TLN||0.63%|
|VIRGIN AMERICA INC||VA||0.63%|
|RITE AID CORP||RAD||0.63%|
|WHITEWAVE FOODS CO||WWAV||0.63%|
|LINKEDIN CORP – A||LNKD||0.63%|
|FLEETMATICS GROUP PLC||FLTX||0.63%|
|RACKSPACE HOSTING INC||RAX||0.63%|
JPHF Home Page
Here is a comment from Robert Deutsch, Head of ETFs for J.P. Morgan Asset Management:
“In the past, alternative investments have been an exclusive option only accessible by a small portion of investors; however, JPHF now makes these investment vehicles available to a wider array of investors. Alternative beta strategies provide investors with true diversification with attractive liquidity, transparency and cost.”
With the launch of JPHF, J.P. Morgan Asset Management’s Diversified Return ETF suite features nine product offerings. J.P. Morgan Asset Management is in the top 10 in ETF flows this year with $400 million coming into our ETF range.