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An Alternative to Diversify ETF Portfolios


An Alternative to Diversify ETF Portfolios

After considering the risks in an extended bull market environment in both traditional equities and fixed-income assets, more exchange traded fund investors are hunting for alternative strategies to hedge against any potential fallout.

On the upcoming webcast, An Alternative to Diversify ETF Portfolios, Yasmin Dahya, Head of Americas Beta Specialist for J.P. Morgan Asset Management, David Lebovitz, Global Market Strategist for J.P. Morgan Asset Management, and John Lunt, President of Lunt Capital Management, will explore the current market environment, consider catalysts for volatility ahead and look to alternative investment strategies to hedge risk-off events or diversify a portfolio.

For example, the JPMorgan Diversified Alternatives ETF (NYSEArca: JPHF), J.P. Morgan’s first actively managed ETF to hit the market, combines various hedge fund-esque, alternative investment strategies in an easy-to-use ETF wrapper. Specifically, JPHF will include equity long/short, event driven and global macro based strategies.

The equity long/short strategy involves simultaneously taking equities that are attractive based on relevant return factors and selling equities that are unattractive based on relevant return factors. The long/short strategy will try to produce alpha through exploiting pricing inefficiencies between equity securities through long and short positions.

The event driven strategy will try to profit from companies on the basis that a specific event or catalyst will affect future pricing. For example, merger arbitrage strategies try to capitalize on price discrepancies and returns in corporate transactions.

Lastly, the global macro based strategy tries to exploit macro economic imbalances across the globe. The strategy may be implemented through a number of asset classes, including stocks, bonds, currencies and commodities.

JPHF includes 59.5% long and -36.4% short exposure to equity long/short; 38.4% long and -13.4% short exposure to the event driven theme; and 66.9% long and -46.2% short exposure to macro based strategies.

The managing advisors of JPHF will try to generate positive total returns over time while including a relatively low correlation to traditional markets, which helps smooth out a portfolio if the markets experience any unexpected turns ahead.

Liquid alternative funds, like JPHF, provide a much cheaper way to access the same kind of hedge fund-esque exposure. In contrast, a hedge fund may include a normal management fee of 1% to 2% on top of a performance fees of as much as 20% of annual gains.

Potential investors should be aware that these types of investments are not meant as growth strategies to generate outsized returns in investment portfolios. In reality, these strategies are doing exactly what they were made for, diminishing volatility. Consequently, in bullish market conditions, the strategies may underperform, but if the markets sour, alts can shine.

Financial advisors who are interested in learning more about alternative investments can register for the Thursday, June 22 webcast here.

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