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The JPMorgan Diversified Return International Equity ETF (NYSEARCA:JPIN) is an exchange traded fund (ETF) that invests in public equity markets throughout the globe (except North America). It has a fully diversified portfolio with special emphasis on value and momentum stocks. Its portfolio is more inclined towards less-volatile segments of the market. Thus it is overweight in the equity markets of the United Kingdom (UK) and Japan, and also in consumer staples and healthcare sector, while underweight in energy. The fund invests in a huge number of less riskier value stocks with a very small proportion of its assets invested in a particular stock. JPIN generated a decent yield and double-digit annual average total returns over the long term.
JPIN has a Diversified Portfolio that is Inclined Towards Less Risky Stocks
The JPMorgan Diversified Return International Equity ETF fully replicates the composition of the JP Morgan Diversified Factor International Equity Index. JPIN also benchmarks itself against FTSE Developed ex North America Index (net total return). This Index splits the global equity markets in four geographical regions and ten sectors within each region, creating 40 regional-sector segments. These four geographical regions are the UK, Europe, Japan, and Rest of Asia. It then assigns weights to those segments according to their historical volatility and selects more stocks from less volatile segments. The fund trades almost around its net asset value (NAV) and has an acceptable expense ratio of 0.37 percent.
The portfolio of JPMorgan Diversified Return International Equity ETF has the following composition – consumer staples (14 percent), health care (10.2 percent), industrials (10.2 percent), financials (9.8 percent), utilities (9.5 percent), consumer discretionary (9.5 percent), materials (8.5 percent), real estate (8.1 percent), information technology (7.2 percent), telecommunication services (6.9 percent), and energy (5.4 percent). Portfolio has 492 stocks, and it does not invest more than 0.5 percent of its assets in a single stock. The fund invested 30 percent in the equity markets of Japan, 25 percent in Rest of Asia, 25 percent in Europe, and 19 percent in the UK.
Top 15 positions of JPMorgan Diversified Return International Equity ETF includes Mitsui & Co., Ltd. (8031.T), Novo Nordisk A/S (NOVO-B.CO), KT&G Corporation (033780.KS), AstraZeneca PLC (AZN.L), 3i Group plc (III.L), Japan Tobacco Inc. (2914.T), Centrica plc (CNA.L), Glencore plc (GLEN.L), Ajinomoto (Malaysia) Bhd (2658.KL), Origin Energy Limited (ORG.AX), Marubeni Corporation (8002.T), BAE Systems plc (BA.L), Imperial Brands PLC (IMB.L), Shell plc (SHELL.AS), and Sembcorp Industries Ltd (U96.SI). In each of these stocks, JPIN has invested between 0.44 percent to 0.5 percent of its assets. This provides an idea about the depth of diversification of JPIN’s portfolio.
The portfolio’s composition reflects JPIN’s preference for less-volatile segments of the market. It has tended to be overweight in consumer staples and underweight in energy. Portfolio of the JPMorgan Diversified Return International Equity ETF also leans toward equity stocks from the U.K. and Japan because their dollar-denominated standard deviations have been lower than other currencies. The Japanese stocks have been considerably less volatile because the exchange rate with the dollar was negatively correlated to local Japanese stock returns, implying that yen-denominated returns have been more volatile than dollar-denominated returns. Lower volatility makes this portfolio very much attractive.
Performance of JPMorgan Diversified Return International Equity ETF
The JPMorgan Diversified Return International Equity ETF was formed in November 2014 by J.P. Morgan Investment Management Inc. This fund tries to hold stocks which deliver strong returns provided the risk is bearable. The fund has an asset under management (AUM) of $760 million. The fund pays quarterly dividends, and has generated a yield of 5.9 percent. The annual average total returns during 2017 to 2021 was almost 11 percent. The current year return has been negative, so as the returns generated by the broader market. The fund has a price to book (P/B) ratio of just above 1. However, JPIN’s average price multiples have been consistently lower than the index, indicating that its valuation in general remains on the lower side.
In my view the portfolio of the JPMorgan Diversified Return International Equity ETF has been defensive and well-balanced. Equity markets in Japan and the United Kingdom are quite stable, and have relatively low but steady growth. On the other hand, equity markets in the rest of Asia and some parts of Europe are delivering high growth. Economies of China, Taiwan, Hongkong, India, Ireland, Poland, Czech Republic, Romania, Hungary, Indonesia, Thailand, Malaysia, Singapore, Philippines, and Vietnam are in a high growth phase. Equity markets in these countries are also expected to deliver strong returns. Within Europe, the stock markets of Denmark, Sweden, Finland, Switzerland, and Netherlands have delivered above average growth over the long term.
JPMorgan Asset Management is A Reliable & Reputed Investment Manager
JPMorgan Asset Management is a well-resourced, thoughtful investment manager that manages more than $2.5 trillion in AUM. Dealing with a diverse set of asset classes, the firm of-late has successfully integrated its capabilities, notably through the development of its proprietary analytical and risk system. JPMorgan’s investment teams have experienced and efficient portfolio managers and are headed by seasoned contributors. The firm’s strategies tend to produce strong & reliable portfolios, and several flagship offerings. This fund manager has enough expertise on managing global funds as they have successfully launched a series of thematic and single-country funds, both of which carry the potential for volatile performance and flows.
Testing My “7 Factor Model for Evaluating Global Funds” on JPIN
I find JPMorgan Diversified Return International Equity ETF to be lucrative according to my “7 Factor Model for Evaluating Global Funds.” It qualifies for the minimum requirements with respect to AUM, stock price, and has a decent yield of almost 6 percent. JPIN is trading around $50. Historically, annual average total returns have been in double digits. The current year return has been negative, so as the returns generated by the broader market. The portfolio is deeply diversified, and carries a low level of risk. This makes the portfolio attractive to its investors. JPIN at present is trading at a negligible discount of 0.22 percent to its NAV. Due to lower risk and deeper diversification of its portfolio, I expect this fund to sustain its current level of yield. I am thus quite bullish about this global ETF.
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