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Smart Beta ETFs Allow Money Managers to Bring Established Strategies to Market


As more money managers look to capitalize on the growing ETF space, many have reconsidered their in-house investment strategies and adapted them into a smart beta or multi-factor ETFs.

“If you look at the products that we have in market today, whether it be our multi-factor equity, our fixed income or ultra short duration alternatives, they are all products that come off of existing verticals within the firm, so you can actually access the investment capabilities of J.P. Morgan inside the ETF wrapper,” Jillian DelSignore, Head of ETF Distribution for J.P. Morgan, said at the recent Morningstar ETF Conference.

These multi-factor ETFs provide advisors and investors direct access to hedge fund exposure inside an ETF vehicle. The underlying indices diversify risks that are less likely to be rewarded while overweighting areas that are more likely to produce positive results.

The underlying customized FTSE Russell indexing methodology selects components based on a diversified set of factor characteristics, such as relative valuation, price momentum and quality. The enhanced indexing process would allow the ETFs to exclude expensive, low quality companies with poor momentum, which could help the ETFs diminish drawdowns without sacrificing too much from any potential upside of a market recovery.

Related: Smart Beta Is an Evolution, Not a Revolution

Through these alternative or smart beta indexing methodologies, ETF providers like J.P. Morgan are able to combine actively managed styles with a passive index-based ETF wrapper.

“That’s really what we’re focused on is bringing product choice to market,” DelSignore said. “We hear that from clients. We don’t want to put product in market for products sake. We want to be able to listen to our clients, understand what their needs are and bring those products that can leverage the capabilities of J.P. Morgan to the marketplace to try to solve problems for our clients.”

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