Is JPMorgan Diversified Return U.S. Mid Cap Equity ETF (JPME) a Strong ETF Right Now?

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?

For a long time now, the ETF industry has been flooded with products based on market capitalization weighted indexes, which are designed to represent the broader market or a particular market segment.

Investors who believe in market efficiency should consider market cap indexes, as they replicate market returns in a low-cost, convenient, and transparent way.

On the other hand, some investors who believe that it is possible to beat the market by superior stock selection opt to invest in another class of funds that track non-cap weighted strategies--popularly known as smart beta.

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.

The smart beta space gives investors many different choices, from equal-weighting, one of the simplest strategies, to more complicated ones like fundamental and volatility/momentum based weighting. However, not all of these methodologies have been able to deliver remarkable returns.

Fund Sponsor & Index

Because the fund has amassed over $207.90 million, this makes it one of the average sized ETFs in the Style Box - Mid Cap Blend. JPME is managed by J.P. Morgan. JPME, before fees and expenses, seeks to match the performance of the Russell Midcap Diversified Factor Index.

The Russell Midcap Diversified Factor Index comprises of mid cap US equity securities selected from the Russell Midcap Index. The Index is diversified across the following sectors: financials, technology, consumer services, health care, industrials, consumer goods, energy/ materials and telecommunication/utilities.

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 2.15%.

Sector Exposure and Top Holdings

Even though ETFs offer diversified exposure that minimizes single stock risk, investors should also look at the actual holdings inside the fund. Luckily, most ETFs are very transparent products that disclose their holdings on a daily basis.

Representing 14.90% of the portfolio, the fund has heaviest allocation to the Consumer Discretionary sector; Healthcare and Information Technology round out the top three.

When you look at individual holdings, Newmont Corp Common (NEM) accounts for about 0.67% of the fund's total assets, followed by Citrix Systems Inc (CTXS) and Molina Healthcare Inc (MOH).

JPME's top 10 holdings account for about 6.06% of its total assets under management.

Performance and Risk

The ETF has lost about -21.49% so far this year and is down about -15.52% in the last one year (as of 05/22/2020). In the past 52-week period, it has traded between $42.43 and $71.93.

JPME has a beta of 1.14 and standard deviation of 21.38% for the trailing three-year period. With about 419 holdings, it effectively diversifies company-specific risk.

Alternatives

JPMorgan Diversified Return U.S. Mid Cap Equity ETF is a reasonable option for investors seeking to outperform the Style Box - Mid Cap Blend segment of the market. However, there are other ETFs in the space which investors could consider.

Vanguard MidCap ETF (VO) tracks CRSP US Mid Cap Index and the iShares Core SP MidCap ETF (IJH) tracks S&P MidCap 400 Index. Vanguard MidCap ETF has $28.60 billion in assets, iShares Core SP MidCap ETF has $40.85 billion. VO has an expense ratio of 0.04% and IJH charges 0.06%.

Investors looking for cheaper and lower-risk options should consider traditional market cap weighted ETFs that aim to match the returns of the Style Box - Mid Cap Blend.

Bottom Line

To learn more about this product and other ETFs, screen for products that match your investment objectives and read articles on latest developments in the ETF investing universe, please visit Zacks ETF Center.

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JPMorgan Diversified Return U.S. Mid Cap Equity ETF (JPME): ETF Research Reports
 
Citrix Systems, Inc. (CTXS) : Free Stock Analysis Report
 
Molina Healthcare, Inc (MOH) : Free Stock Analysis Report
 
Newmont Corporation (NEM) : Free Stock Analysis Report
 
iShares Core SP MidCap ETF (IJH): ETF Research Reports
 
Vanguard MidCap ETF (VO): ETF Research Reports
 
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