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Is JPMorgan Diversified Return Emerging Markets Equity ETF (JPEM) a Strong ETF Right Now?

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A smart beta exchange traded fund, the JPMorgan Diversified Return Emerging Markets Equity ETF (JPEM - Free Report) debuted on 01/07/2015, and offers broad exposure to the Broad Emerging Market ETFs category of the market.

What Are Smart Beta ETFs?

The ETF industry has long been dominated by products based on market cap weighted indexes, a strategy created to reflect the market or a particular market segment.

A good option for investors who believe in market efficiency, market cap weighted indexes offer a low-cost, convenient, and transparent way of replicating market returns.

However, some investors believe in the possibility of beating the market through exceptional stock selection, and choose a different type of fund that tracks non-cap weighted strategies: smart beta.

Based on specific fundamental characteristics, or a combination of such, these indexes attempt to pick stocks that have a better chance of risk-return performance.

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

Managed by J.P. Morgan, JPEM has amassed assets over $221.90 million, making it one of the average sized ETFs in the Broad Emerging Market ETFs. This particular fund, before fees and expenses, seeks to match the performance of the FTSE Emerging Diversified Factor Index.

The FTSE Emerging Diversified Factor Index are selected from advanced and secondary emerging markets strictly in accordance with guidelines and mandated procedures and are selected from constituents of the FTSE Emerging Index.

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.

With on par with most peer products in the space, this ETF has annual operating expenses of 0.44%.

JPEM's 12-month trailing dividend yield is 4.01%.

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.

Looking at individual holdings, Taiwan Semiconductor accounts for about 2.11% of total assets, followed by Naspers Ltd Common Stock (NPN) and Reliance Industries Ltd (RELI_D.).

Its top 10 holdings account for approximately 14.16% of JPEM's total assets under management.

Performance and Risk

The ETF has lost about -13.14% so far this year and is down about -9.33% in the last one year (as of 11/05/2020). In the past 52-week period, it has traded between $36.19 and $58.24.

The fund has a beta of 0.85 and standard deviation of 22.67% for the trailing three-year period, which makes JPEM a medium risk choice in this particular space. With about 501 holdings, it effectively diversifies company-specific risk.

Alternatives

JPMorgan Diversified Return Emerging Markets Equity ETF is not a suitable option for investors seeking to outperform the Broad Emerging Market ETFs segment of the market. Instead, there are other ETFs in the space which investors should consider.

IShares Core MSCI Emerging Markets ETF (IEMG - Free Report) tracks MSCI Emerging Markets Investable Market Index and the Vanguard FTSE Emerging Markets ETF (VWO - Free Report) tracks FTSE Emerging Markets All Cap China A Inclusion Index. IShares Core MSCI Emerging Markets ETF has $57.16 billion in assets, Vanguard FTSE Emerging Markets ETF has $64.21 billion. IEMG has an expense ratio of 0.13% and VWO charges 0.10%.

Investors looking for cheaper and lower-risk options should consider traditional market cap weighted ETFs that aim to match the returns of the Broad Emerging Market ETFs.

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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