2023-03-24 14:39:29 ET
Summary
- JPMorgan Diversified Return International Equity ETF offers quarterly payouts and has generated a 5-year annual average yield of 3.53% and 5-year annual average total return of 6.8%.
- JPIN diversifies its investments in four regions - Japan, United Kingdom, Europe, and Rest of Asia; and invests in all major segments of those regions.
- An investment in 466 equity holdings with no investment involving more than 0.45 percent of its total assets makes JPIN a deeply-diversified fund.
- J.P. Morgan Investment Management Inc. asset managers are skilled enough to efficiently utilize JPIN’s large asset base of $771.75 million.
~ by Snehasish Chaudhuri, MBA (Finance)
JPMorgan Diversified Return International Equity ETF ( JPIN ) is an exchange-traded fund ("ETF") launched and managed by J.P. Morgan Investment Management Inc., which manages more than $2.5 trillion in assets under management ("AUM") and deals with a diverse set of asset classes. JPMorgan's (JPM) asset management teams have plenty of efficient and experienced portfolio managers. They have enough expertise in managing international funds, as they have successfully launched a series of single-country funds and thematic funds, which carries the potential for volatile performance and flows.
The JPIN fund has generated a low yield but a strong total return over the long run. It is currently trading at $50.8, which is a marginal discount of 0.23 percent from its Net Asset Value. The fund has an expense ratio of 0.37 percent, which is well under control for a deeply diversified international value equity fund like this.
Investment Strategy Of JPMorgan Diversified Return International Equity ETF
JPMorgan Diversified Return International Equity ETF holds stocks with a combination of attractive factor characteristics while reducing risk. Each of its top 25 investments accounts for 0.41 percent to 0.45 percent of JPIN's total assets. JPMorgan Diversified Return International Equity ETF invests in global public equity markets except in the U.S. and Canada region. It invests in stocks of companies operating across telecommunication services, communication services, health care, oil, energy, materials, financials, gas and consumable fuels, consumer services, consumer discretionary, industrials, information technology, and utilities sectors. With an emphasis on low-volatility stocks across diverse market capitalization, JPIN's portfolio has been successful in selecting and investing in a large group of value and momentum stocks.
JPMorgan Diversified Return International Equity ETF fully replicates the JP Morgan Diversified Factor International Equity Index. This Index splits the global equity markets into four geographical regions and ten sectors within each region, creating 40 regional-sector segments. The United Kingdom, Europe, Japan, and Rest of Asia are four such geographical regions. The fund managers then measure the historical volatility of these stocks and assign weights accordingly, which enables the asset managers to select more and more stocks from less volatile segments. The index rebalances quarterly in March, June, September, and December. Stocks are changed during such quarterly portfolio rebalancing, and JPIN has a turnover ratio of 28 percent.
JPIN's Average Yield And Total Returns Are Decent, But Not Lucrative Enough
The JPMorgan Diversified Return International Equity ETF offers a quarterly payout, and during the past five years (2018 to 2022) the annual average yield stood at 3.53 percent. The yield is not strong, but not very low either. It can be termed as decent. Investors may require a higher return, which is somehow possible through total return generated by the fund. During the period between 2016 and 2021, annual average total return of JPIN stood at 6.8 percent. So, return-wise, this fund is not that exciting. Only if there is a certainty of sustainability of such return, investors may feel attracted. However, total return in 2022 was negative 14 percent, and during the current year, it's also quite low at 3.4 percent. Moreover, there lies the currency conversion risk, i.e., losing out on returns due to conversion from other currencies to the U.S. dollar.
JPIN's Top Investments Witnessed Significant Change In The Past 3 Months
The JPMorgan Diversified Return International Equity ETF invests in every segment of the economy. However, almost half of its investments are made in four sectors - industrial, basic materials, healthcare, and information & communication technology ((ICT)). If we compare with JPIN's top 25 investments three months back, we'll find five stocks - BAE Systems plc ( BAESF ), AstraZeneca PLC ( AZN ), Novo Nordisk A/S ( NVO ), Japan Tobacco Inc. ( JAPAF ), and Sembcorp Industries Ltd ( SCRPF ) - still feature high among the top investments of this global fund. Stocks of Mitsui & Co., Ltd. ( MITSF ), 3i Group plc ( TGOPF ), Centrica plc ( CPYYF ), Glencore plc ( GLCNF ), Ajinomoto Co., Inc. ( AJINF ), Origin Energy Limited ( OGFGF ), Marubeni Corporation ( MARUY ), KT&G Corporation ( KTCIF ), Imperial Brands PLC ( IMBBY ), Shell plc ( SHEL ) - all these stocks no longer feature among its top holdings.
In the current portfolio, JPIN has made significant investments in Wolters Kluwer N.V. ( WOLTF ), Takeda Pharmaceutical Company Limited ( TAK ), Iberdrola, S.A. ( IBDSF ), Nippon Telegraph and Telephone Corporation ( NTTYY ), SoftBank Group Corp. ( SFTBF ), United Utilities Group PLC ( UUGRY ), Koninklijke Ahold Delhaize N.V. ( ADRNY ), Deutsche Telekom AG ( DTEGF ), Pernod Ricard SA ( PDRDF ), KDDI Corp. ( KDDIF ), Koninklijke KPN N.V. ( KKPNF ), Swisscom AG ( SWZCF ), Haleon plc ( HLN ), SSE plc ( SSEZF ), Daito Trust Construction Co., Ltd. ( DITTF ), GSK plc ( GSK ), Eiffage SA ( EFGSF ), Carrefour SA ( CRERF ), Coles Group Ltd. ( CLEGY ), and Tokyo Gas Co., Ltd. ( TKGSF ). In each of these stocks, JPIN has invested between 0.41 percent to 0.43 percent of its assets. This provides an idea of how diversified JPIN's portfolio is.
The current composition of JPIN's portfolio reflects its preference for less-volatile, value and momentum stocks. The portfolio is a little overweight in consumer staples and has a low emphasis on energy stocks. The portfolio of the JPMorgan Diversified Return International Equity ETF also leans toward equity stocks from Japanese and U.K. markets, as their dollar-denominated deviations have been lower as compared to other currencies. During my last coverage of JPIN in December 2022, I have described this factor in detail. That time, I found that:
"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."
JPIN's portfolio has some unique attractions beyond returns.
Investment Thesis
The JPMorgan Diversified Return International Equity ETF is a global fund that generates low but decent return. Of late, there has been a decline in the return, which may not be the case over the long run. The fund diversifies its investments in four regions of The United Kingdom, Europe, Japan, and Rest of Asia, and invests in all the major segments of such economies. The fund is further diversified in terms of number of holdings and their weights. An investment in 466 equity holdings with no investment involving more than 0.45 percent of its total assets, makes JPIN a deeply-diversified fund. Its portfolio is rebalanced quarterly and has a quite decent turnover ratio.
However, the returns probably fail to excite investors. The JPMorgan Diversified Return International Equity ETF is also not available at a significant discount, which again discourages an investment in this fund. The fund however has a large asset base of $771.75 million, which may be used efficiently in the global markets in order to generate strong returns. The asset managers in J.P. Morgan Investment Management Inc. are experienced enough to do that, as they have successfully launched a series of single-country funds and thematic funds.
Overall, JPMorgan Diversified Return International Equity ETF is a fundamentally good fund but with less-than-adequate returns. In my opinion, fresh investments in it don't make much sense. But existing investors may be wise to hold their investments in JPIN.
For further details see:
JPIN: A Decent International Equity Fund With A Less Than Adequate Return