JP Morgan Asset Management is proposing active ETFs with various levels of expected tracking error against their respective benchmark. Besides, JSEM is “designed to help clients meet decarbonisation objectives, combined with our fundamentally active research-enhanced investment process.” said Travis Spence, global head of ETFs at JP Morgan Asset Management.  Photo: Shutterstock, JP Morgan Asset Management, Montage: Maison Moderne

JP Morgan Asset Management is proposing active ETFs with various levels of expected tracking error against their respective benchmark. Besides, JSEM is “designed to help clients meet decarbonisation objectives, combined with our fundamentally active research-enhanced investment process.” said Travis Spence, global head of ETFs at JP Morgan Asset Management.  Photo: Shutterstock, JP Morgan Asset Management, Montage: Maison Moderne

JPMAM’s new JLOC emerging market bond active ETF driven by fundamental research (security selection, FX, and rates) may have a greater chance to achieve a significant outperformance compared to its benchmark and to the new JSEM emerging markets equity SRI Paris-aligned active ETF, given the latter’s relatively tight management against its bespoke benchmark.

JP Morgan Asset Management on 12 March 2025 (ETF): JPM Emerging Markets Local Currency Bond Active Ucits ETF (JLOC) and the JPM Global Emerging Markets Research Enhanced Index Equity SRI Paris Aligned Active Ucits ETF (JSEM).

Paperjam followed up with the fund manager to get more colour on the newly launched funds in the highly popular ETF format. 

JPM Emerging Markets Local Currency Bond Active Ucits ETF (JLOC)

As the strategy was launched in 2008, Paperjam inquired about its performance against its benchmark and how the implementation in the ETF will differ from the strategy. In a written statement, JPMAM’s communication department stated that the strategy achieved a “1.9% gross alpha annualised over the past 3 & 5 years,” but its performance suffered a “slight drawdown in 2024” after generating an “alpha over 1.5%” in the previous four consecutive calendar years. JPMAM targets a gross alpha of 75bps to 125bps. It already reported that the total expense ratio (TER) has been set at 45bps.

Paperjam also asked how the strategy would be implemented differently in the JLOC compared to the strategy in place since 2008. JPMAM replied that the “JLOC will be managed by the same investment team using the same investment approach and investment process” but the strategy will be implemented with “slight differences.”

·      “We are unable to utilise bilateral OTC derivatives in an ETF structure so these will not be used in JLOC;

·      JLOC will also have a greater consideration for liquidity so less frontier countries will be used.”

JPM Global Emerging Markets Research Enhanced Index Equity SRI Paris Aligned Active Ucits ETF (JSEM)

No track record for the strategy is available, as it was launched on 5 March 2025, whilst the ETF was listed on 12 March 2025. However, JPMAM noted that its “sister strategy, JREM, has been in place since 2016, marking the inception of our research enhanced index strategy in emerging markets. No performance details were provided.”

In a , JPMAM told Paperjam that it targeted an alpha of 75bps on an ETF covering the UK, eurozone, China, Asia-Pacific-ex-Japan and Japan, and its Global Research Enhanced Index Equity (ESG) UCITS ETF. Coupled with a total expense ratio set at 30bps, the alpha target of 50bps for the JSEM looks therefore unambitious.

Still active management?

JPMAM explained that the JSEM employs a different strategy than JLOC. “As one of our active equity ETFs, JSEM utilises our research enhanced index (REI) approach, which aims to closely match the risk characteristics of its benchmark while adding value through bottom-up stock selection and leveraging stock-specific insights.” The asset management firm has not clarified the flexibility given to stock selection against a close risk matching of the index.

It is worth noting the , CEO of the Association of the Luxembourg Fund Industry, on active ETFs: “[JPMAM or Nordea] offer something more akin to smart beta or systematic, which is not really active asset management. The correlation of their funds is very close to passive funds.”

JPMAM admits that the discrepancies to its bespoke sustainable MSCI benchmark, the MSCI Emerging Markets SRI EU PAB Overlay ESG Custom Index, “are not significant.” The asset manager specified that the sustainable investment universe is “30-40% of the traditional/parent index,” while it has no energy and less materials exposure when one is looking into the sector discrepancies.

Strategy to get greener

Questioned by Paperjam on how the JSEM ETF will achieve at least 50% less greenhouse gas intensity than the MSCI Emerging Market Index, JPMAM answered that “the ETF follows a custom benchmark designed by excluding the lowest-performing companies in each sector based on MSCI ESG scores (minimum rating of BB) and implementing extensive value and norm-based exclusions, such as fossil fuels, weapons, power generation, and tobacco (with applicable thresholds).” It continued: “This refined universe aligns with Paris-aligned benchmark objectives, ensuring that greenhouse gas emissions are at least 50% lower at the index level compared to the broader investable universe, with a commitment to reducing carbon intensity by 7% annually and to not being underweight high climate impact sector names.”

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