JP Morgan Launches Long-Short ETF

JP Morgan launched a new fund on Jan 25, 2018, JPMorgan (NYSE:JPM) Long/Short ETF JPLS, focused on providing long-short exposure to equity factors with a dynamic beta.

Long-Short ETFs have come to the spotlight, as the global stock market rout deepens. The Dow declined 1,175 points (4.6%) at closing on Feb 5, 2018.

The surge in bond yields is driving fears that inflation will rise further, as a result of which the Fed might have to raise interest rates at a faster pace. Interest rate fears have resulted in a sell-off in markets across the globe, and long-short ETFs are garnering investor attention owing to their potential to benefit in a stock market downturn as well.

Fund Characteristics

The fund seeks to employ a bottom-up rules-based methodology to offer investors exposure to a diversified portfolio of long-short equity positions, depending on the fund manager’s view of the markets. The fund tries to profit from pricing inefficiencies by maintaining long and short positions to equity factors, namely value, quality and momentum.

The fund has amassed $25.1 million within a few days of trading and charges a fee of 69 basis points a year. It has 536 holdings in its portfolio and has top long allocations to Deckers Outdoor Corp, Ingersoll-Rand PLC and Eastman Chemical Co, with 0.5% exposure to each.

How Does it Fit in a Portfolio?

This ETF is a good play for investors looking for some risk mitigation in a market downturn. It has the potential to serve as a diversifying investment for investors. “With JPLS, we are proud to contribute to the democratization of hedge fund investing by offering our clients access to institutional-quality products, which helps them build stronger portfolios,” said Joanna Gallegos, U.S. Head of ETFs for J.P. Morgan Asset Management.

This ETF seeks to provide diversification to a traditional asset portfolio by exposing investors to long-short strategies. This they can do by simultaneously going long on equities that the fund manager believes have the potential to generate positive returns and going short on those that lack the potential to generate positive returns.

As a result, we believe this ETF has good potential to diversify investors’ portfolio of traditional assets.

Competition

The fund faces immense competition from other funds focused on providing exposure to the same space. Below we discuss a few ETFs that seek to provide exposure to this corner (see all Hedge Fund ETFs here).

First Trust Long/Short Equity Fund FTLS

This fund offers long-short exposure to the U.S. equity markets. It had 98.6% long exposure and 27.0% short exposure, netting to 71.6% as of Feb 2, 2018. From a sector look, it has high exposure to Consumer Discretionary, Technology and Financials, with 19.7%, 19.5% and 13.4% exposure, respectively (as of Feb 2, 2018). It has AUM of $147.8 million and charges a fee of 96 basis points a year. It has returned 12.9% in a year.

WisdomTree Dynamic Long/Short U.S. Equity Fund DYLS

This fund offers long-short exposure to the U.S. equity markets. It seeks to generate returns for investors irrespective of market direction.

From a sector look, it has high exposure to Technology, Consumer Discretionary and Health Care, with 26.4%, 14.4% and 13.2% exposure, respectively (as of Feb 5, 2018). It has AUM of $119.0 million and charges a fee of 48 basis points a year. It has returned 14.7% in a year.

Hull Tactical US ETF HTUS

This fund is an actively managed ETF that offers long-short exposure to the U.S. equity markets. It seeks to achieve long term growth for investors irrespective of market direction by taking long and short positions in ETFs that track the S&P 500.

It has AUM of $96.6 million and charges a fee of 92 basis points a year. It has lost 2.2% in a year.

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