The exchange-traded funds (ETFs) space is constantly looking for new growth frontiers. In recent years, smart beta has provided exceptional growth. Within the smart beta space, multi-factor ETFs have the potential to spur growth in the years ahead. While many multi-factor ETFs are still young by fund industry standards, some are off to promising starts. "Based on fund flows, investors are not waiting for an ETF to hit an anniversary before investing, as many of these young products have passed the $100 million milestone," said CFRA Research Director of ETF and Mutual Fund Research Todd Rosenbluth in a note out Monday.
One of the multi-factor ETFs that is not "old" but is off to a solid start is the JPMorgan Diversified Return U.S. Equity ETF (JPUS). JPUS debuted in September 2015 and has nearly $500 million in assets under management, making it the largest of JPMorgan Asset Management's U.S.-focused equity ETFs. JPUS follows the Russell 1000 Diversified Factor Index, "which utilizes a rules-based approach combining risk-weighted portfolio construction with multi-factor security screening based on value, quality and momentum factors," according to JPMorgan Asset Management.
JPUS not only looks to deliver upside when stocks are rising "but also aims to minimize the downside with a risk-weighted approach to portfolio construction," said Rosenbluth. Since coming to market in September 2015, JPUS has outperformed the S&P 500 and the Russell 1000 Index by an average of 220 basis points. Additionally, JPUS has been 180 basis points less volatile than those benchmarks since inception. (See also: Survey Confirms Smart Beta Growth Trajectory.)
Since inception, JPUS has delivered a compound annual growth rate (CAGR) of 13.5%, which is superior to the S&P 500 and Russell 1000 Index over the same period. During that time, the maximum drawdown experienced by JPUS was 11.7%, an average of about 200 basis points lower than the drawdowns for the S&P 500 and Russell 1000 Index since JPUS debuted.
From inception through the end of January 2018, $10,000 invested in JPUS was worth more than $15,000, according to issuer data. JPUS holds 526 stocks. None of those holdings account for more than 0.73% of the ETF's weight. The JPUS portfolio has a return on equity (ROE) of 19%, or more than 130 basis points above the comparable metric on the Russell 1000 Index. JPUS has an annual expense ratio of 0.19%, putting it on the cheaper end of U.S. large-cap smart beta funds. (For more, see: Multi-Factor ETFs Come of Age.)