{"id":2954,"date":"2022-08-22T17:25:49","date_gmt":"2022-08-22T17:25:49","guid":{"rendered":"http:\/\/blog.valuengine.com\/?p=2954"},"modified":"2022-09-01T20:06:45","modified_gmt":"2022-09-01T20:06:45","slug":"do-not-be-alarmed-by-the-closing-of-jp-morgan-indexed-etfs","status":"publish","type":"post","link":"http:\/\/blog.valuengine.com\/index.php\/do-not-be-alarmed-by-the-closing-of-jp-morgan-indexed-etfs\/","title":{"rendered":"Do Not Be Alarmed By the Closing of JP Morgan Indexed ETFs."},"content":{"rendered":"

Do Not Be Alarmed By the Closing of JP Morgan Indexed ETFs.\u00a0 I say this even as I say that I believe this may be part of an emerging trend.\u00a0 Many mutual fund companies that are known for touting active management but stuck their feet in the water with ETFs will likely follow suit.\u00a0\u00a0<\/span><\/p>\n

The press release said that J.P. Morgan Asset Management will liquidate two exchange-traded funds:<\/span><\/p>\n

JPMorgan U.S. Minimum Volatility ETF, <\/span>JMIN, <\/b>\u00a0<\/span><\/p>\n

and the JPMorgan U.S. Dividend ETF, <\/span>JDIV.<\/b><\/p>\n

All of the approximately 5,000 stocks, 16 sector groups, 140 industries, and 500 ETFs have been updated on\u00a0<\/b>www.ValuEngine.com<\/b><\/a><\/h5>\n
Free Two Week Trial to all 5,000 plus equities and ETFs covered by ValuEngine\u00a0<\/b>HERE<\/b><\/a><\/h5>\n

The release also included the following technical-sounding jargon:<\/span>
\n<\/span>Shareholders of each of the funds can sell their shares on the NYSE Arca exchange until market close on Sept. 6, the designated last trading day. The funds will stop accepting creation orders from authorized participants after the Sept. 6 market close, and shares will be delisted ahead of the Sept. 7 market open.\u00a0 Shareholders who continue to hold shares of either of the Funds on the Funds’ designated aforementioned liquidation date will receive a liquidating distribution of cash in the cash portion of their brokerage accounts equal to the amount of the net asset value of their shares.\u00a0 The funds are set to be liquidated on Sept. 14.<\/span><\/p>\n

What does this all mean for holders of <\/span>JMIN<\/b> and <\/span>JDIV<\/b>?\u00a0 There is absolutely no reason to worry.\u00a0 First, they are protected by the underlying assets held by the fund.\u00a0 I believe that rather than wait for liquidating distributions, most fund shareholders should consider selling their shares online sometime between 10:30 AM and 2:30 PM using limit orders.\u00a0 Both <\/span>JMIN <\/b>and<\/span> JDIV <\/b>generally have spreads kept $0.01 apart so shareholders should realize a price very close to the fund\u2019s Net Asset Value (NAV).\u00a0<\/span><\/p>\n

Since the underlying stocks of both funds are very liquid and both funds had assets of less than $60 million the fact that other shareholders will be selling should not affect the share price very much because market makers will step in if the fund drifts too far from NAV.\u00a0 This is one of the big advantages of ETFs over closed-end funds.\u00a0\u00a0\u00a0<\/span><\/p>\n

Why is JP Morgan liquidating these two ETFs that together accounted for approximately $110 Million under management?\u00a0<\/span><\/p>\n

JP Morgan Asset Management\u2019s philosophy is that actively managed funds serve investors better than passive funds.\u00a0 Prior to SEC rule changes in 2019 facilitating the entry of semi-transparent actively managed ETFs, passively managed ETFs constituted more than 90% of the assets in the ETF space.\u00a0 That proportion is changing with the SEC innovation combined with increasing investor and provider awareness that actively managed mutual funds are much more process-, cost- and tax-efficient in the ETF structure than they had been in the traditional structure.\u00a0 In JP Morgan Asset Management\u2019s case, they probably prefer to focus on projects that utilize the company\u2019s core in-house strength and expertise.\u00a0 The decision to drop passive products in favor of active has probably been bolstered by the quick success enjoyed by the JPMorgan Equity Premium Income ETF, <\/span>JEPI<\/b>. It has accumulated more than $12 billion under management in just two years of existence.\u00a0<\/span><\/p>\n

What should investors do if they want to reinvest the cash received for the shares?\u00a0<\/span><\/p>\n

JMIN, <\/b>focused on minimizing price volatility, has the following relevant data:<\/span><\/p>\n

Beta = 0.57; Dividend Yield = 1.6%; YTD Gain = 0.3%; 1-Yr. Gain = 7.0%<\/span><\/p>\n

For <\/span>JDIV, <\/b>focused on high risk-adjusted dividend yield, these were the numbers:<\/span><\/p>\n

Beta = 0.62; Dividend Yield = 2.4%; YTD Gain = 2.5%; 1-Yr. Gain = 6.9%<\/span><\/p>\n

During the past year, both <\/span>JDIV <\/b>and <\/span>JMIN <\/b>handily outperformed the S&P 500 Index and more than 75% of non-leveraged equity funds with above-average yields and below-average Betas. It would seem that investors during this period should be happy with these results and are probably less than thrilled that the funds are closing.\u00a0 That said, let\u2019s look at potential replacement holdings for owners of <\/span>JDIV <\/b>and<\/span> JMIN.<\/b><\/p>\n

The most popular ETF in the minimum volatility space is iShares MSCI USA Min Vol Factor ETF, <\/span>USMV<\/b>, with $30 Billion in AUM.\u00a0 The most popular <\/span>ETF <\/b>in the high dividend space is <\/span>VYM, <\/b>the Vanguard High Dividend Yield <\/span>ETF <\/b>with nearly $50 Billion in AUM.\u00a0 Investors preferring to combine both objectives may wish to add Invesco S&P 500\u00ae High Dividend Low Volatility ETF, <\/span>SPHD<\/b>, to their radar screen for potential consideration. JEPI is also included in the comparison..<\/span><\/p>\n

A quick summary of the ETFs being included:<\/span><\/p>\n

USMV, <\/b>iShares MSCI USA Min Vol Factor ETF – The fund typically overweights defensive, dividend-paying sectors. USMV\u2019s optimizer also aims to keep other market -like risk factors as it dials back on volatility.\u00a0<\/span><\/p>\n

VYM, <\/b>Vanguard High Dividend Yield ETF<\/span> – <\/b>VYM tracks the FTSE High Dividend Yield Index. The index selects high-dividend-paying US companies, excluding REITS, and weights them by market cap.<\/span><\/p>\n

SPHD, <\/b>Vanguard High Dividend Yield ETF<\/span> – <\/b>SPHD tracks a dividend-yield-weighted index comprising the least volatile, highest dividend-yielding S&P 500 stocks.<\/span><\/p>\n

JEPI, <\/b>JP Morgan Equity Premium Income ETF<\/span> \u2013 <\/b>the actively managed fund selects stocks from the S&P 500 Index using a process to identify value stocks with favorable risk\/return characteristics along with ESG considerations. The final portfolio looks to hold those securities with lower volatility relative to the benchmark index. In addition, the fund\u2019s adviser enters equity-linked notes to provide the returns of the S&P 500 Index with covered call options written. The objective is to provide the same return as the S&P 500 Index with lower volatility over a 3-5-year period combined with monthly income.<\/span><\/p>\n

VOO, <\/b>Vanguard S&P 500 Index ETF, tracks the S&P 500 Index.<\/span><\/p>\n

Current ValuEngine reports on these ETF\u2019s can be viewed\u00a0<\/b>HERE<\/b><\/a><\/h5>\n

Using ValuEngine and Yahoo Finance reports, let\u2019s look at the investment profiles of these four ETFs now in comparison with the Vanguard S&P 500 ETF, <\/span>VOO.<\/b><\/p>\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n
<\/td>\nUSMV<\/b><\/td>\nVYM<\/b><\/td>\nSPHD<\/b><\/td>\nJEPI<\/b><\/td>\nVOO<\/b><\/td>\n<\/tr>\n
Market Index Being Tracked<\/span><\/td>\niShares-MSCI-US Minimum Volatility<\/b><\/td>\nVanguard High Dividend Yield<\/b><\/td>\nInvesco S&P 500 High Dividend Low Volatility\u00a0<\/b><\/td>\nJP Morgan Equity Premium Income<\/b><\/td>\nVanguard S&P 500 Index\u00a0<\/b><\/td>\n<\/tr>\n
ValuEngine Rating<\/span><\/td>\n5<\/b><\/td>\n5<\/b><\/td>\n4<\/b><\/td>\nN\/A<\/b><\/td>\n3<\/b><\/td>\n<\/tr>\n
VE Forecast 1-yr. Price Return<\/span><\/td>\n+2.7%<\/b><\/td>\n+1.3%<\/span><\/td>\n+0.3%<\/span><\/td>\nN\/A<\/span><\/td>\n-0.3%<\/span><\/td>\n<\/tr>\n
Historic 3 mo. Price Return<\/span><\/td>\n6.6%<\/span><\/td>\n7.9%<\/b><\/td>\n0.5%<\/span><\/td>\n4.7%<\/span><\/td>\n8.9%<\/span><\/td>\n<\/tr>\n
Historic 6 mo. Price Return<\/span><\/td>\n1.6%<\/span><\/td>\n8.8%<\/b><\/td>\n3.4%<\/span><\/td>\n-3.0%<\/span><\/td>\n-3.0%<\/span><\/td>\n<\/tr>\n
Historic 1-Yr. Price Return\u00a0<\/span><\/td>\n-1.3%<\/span><\/td>\n6.2%<\/span><\/td>\n5.1%<\/span><\/td>\n1.6%<\/span><\/td>\n-4.1%<\/span><\/td>\n<\/tr>\n
Historic 5-Yr Ann. Price Return<\/span><\/td>\n7.8%<\/b><\/td>\n7.8%<\/span><\/td>\n7.6%<\/span><\/td>\nN\/A<\/span><\/td>\n10.3%<\/span><\/td>\n<\/tr>\n
Volatility<\/b><\/td>\n14.2%<\/b><\/td>\n16.2%<\/span><\/td>\n18.0%<\/span><\/td>\nN\/A<\/span><\/td>\n17.5%<\/span><\/td>\n<\/tr>\n
Sharpe Ratio\u00a0<\/span><\/td>\n0.55<\/span><\/td>\n0.52<\/span><\/td>\n0.67<\/span><\/td>\nN\/A<\/span><\/td>\n0.59<\/span><\/td>\n<\/tr>\n
Beta<\/b><\/td>\n0.78<\/span><\/td>\n0.86<\/span><\/td>\n0.84<\/span><\/td>\n0.57<\/b><\/td>\n1.00<\/span><\/td>\n<\/tr>\n
# of Holdings<\/span><\/td>\n173<\/b><\/td>\n441<\/span><\/td>\n47<\/span><\/td>\n104<\/span><\/td>\n500<\/span><\/td>\n<\/tr>\n
Undervalued by VE %<\/span><\/td>\n28%<\/span><\/td>\n45%<\/b><\/td>\n40%<\/span><\/td>\nNot Applicable<\/span><\/td>\n29%<\/span><\/td>\n<\/tr>\n
P\/B Ratio<\/span><\/td>\n4.6x<\/span><\/td>\n2.2x<\/b><\/td>\n4.0x<\/span><\/td>\n4.7x<\/span><\/td>\n4.1x<\/span><\/td>\n<\/tr>\n
P\/E Ratio<\/span><\/td>\n22.1<\/span><\/td>\n15.5<\/b><\/td>\n20.1x<\/span><\/td>\n21.6x<\/span><\/td>\n20.7x<\/span><\/td>\n<\/tr>\n
Div. Yield<\/span><\/td>\n1.4%<\/span><\/td>\n2.9%<\/span><\/td>\n3.5%<\/span><\/td>\n11.9%<\/b><\/td>\n1.5%<\/span><\/td>\n<\/tr>\n
Expense Ratio<\/span><\/td>\n0.15%<\/span><\/td>\n0.06%<\/b><\/td>\n0.30%<\/span><\/td>\n0.35%<\/span><\/td>\n0.03%<\/span><\/td>\n<\/tr>\n
Index Provider<\/span><\/td>\nMSCI<\/span><\/td>\nCRSP<\/span><\/td>\nS&P Dow Jones.<\/span><\/td>\nNone – Active<\/span><\/td>\nS&P Dow Jones<\/span><\/td>\n<\/tr>\n
Index<\/span><\/p>\n

Scheme<\/span><\/td>\n

Optimized <\/span>Weighting<\/span><\/td>\nMkt. Cap Weighting<\/span><\/td>\nDividend Yield Weighted<\/span><\/td>\nNone – Active<\/span><\/td>\nMkt. Cap Weighting\u00a0<\/span><\/td>\n<\/tr>\n
ETF Sponsor<\/span><\/td>\niShares by Blackrock<\/span><\/td>\nVanguard<\/span><\/td>\nInvesco<\/span><\/td>\nJP Morgan<\/span><\/td>\nVanguard<\/span><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

Current ValuEngine reports on these ETF\u2019s can be viewed\u00a0<\/b>HERE<\/b><\/a><\/p>\n

    \n
  1. Key Findings:<\/span>
    \n<\/span>1. All four potential replacement ETFs rated by ValuEngine are superior choices for the next year to the Vanguard S&P 500 ETF, <\/span>VOO.\u00a0 USMV <\/b>and <\/span>VYM <\/b>all get ValuEngine\u2019s highest rating of 5. <\/span>SPHD <\/b>is also rated as above-average with a rating of 4 out of 5. <\/span>JEPI, <\/b>with considerable deployments in derivatives and fixed income securities, is not rated by ValuEngine while <\/span>VOO <\/b>gets a neutral 3 rating.<\/span><\/li>\n
  2. The most compensation in return for a given level of risk as measured by the Sharpe Ratio was posted by <\/span>SPHD <\/b>with 0.67 as compared with 0.59 posted by <\/span>VOO.<\/b><\/li>\n
  3. <\/b>JEPI\u2019s <\/b>active management team<\/span> has done an excellent job of meeting the ETF\u2019s twin objectives of high dividend yield and below-average price volatility.\u00a0 It places highest of the six ETFs in both dividend yield and Beta.\u00a0 In fact, its current dividend yield of 11.9% is equaled by no US equity ETFs that do not use derivatives.\u00a0\u00a0<\/span><\/li>\n
  4. VYM <\/b>performed best on valuation with the lowest price-to-earnings and price-to-book ratios among the six ETFs.\u00a0 SPHD <\/b>finished as the second most attractive based upon traditional valuation metrics<\/li>\n<\/ol>\n
    Financial Advisory Services based on ValuEngine research available: \u00a0\u00a0<\/b>www.ValuEngineCapital.com<\/b><\/a><\/h5>\n

    Conclusions<\/b><\/p>\n

    ETF liquidations should really be thought of more as security retirements.\u00a0 Any Investors can receive the full value of the underlying securities when sold or redeemed. In many ways, it is a shame that JP Morgan opted to close <\/span>JDIV <\/b>and <\/span>JMIN <\/b>as both had fulfilled their investment objectives very well in a very tough environment for equities. My belief is that given recent regulatory standards relaxing constraints on active management in the ETF structure, JP Morgan felt that active ETFs such as <\/span>JEPI <\/b>were a better fit for the firm\u2019s investment profile.\u00a0\u00a0\u00a0<\/span><\/p>\n

    Indeed, investors currently holding <\/span>JMIN <\/b>and <\/span>JDIV <\/b>would have invested in a similarly low Beta ETF with a much higher dividend yield by purchasing actively managed <\/span>JEPI <\/b>as long as they were comfortable with the fact that the fund is an equity hybrid that also holds bonds and derivatives and is semi-transparent with its current holdings.\u00a0<\/span><\/p>\n

    For those needing to redeploy assets into conservative ETFs with superior dividend yields to <\/span>VOO, <\/b>all of the ETFs reviewed including <\/span>JEPI, USMV<\/b>, <\/span>VYM<\/b>, and <\/span>SPHD <\/b>all performed very well in the past 12 months and look to be well-positioned for conservative investors.\u00a0 This may be especially true if the equity markets remain volatile and continue to be characterized by above-average economic and geopolitical risk environments.<\/span><\/p>\n

    By Herbert Blank<\/b><\/h5>\n
    Senior Quantitative Analyst, ValuEngine Inc<\/b><\/h5>\n
    www.ValuEngine.com<\/b><\/a><\/h5>\n
    support@ValuEngine.com<\/b><\/h5>\n
    _______________________________________________<\/b><\/h5>\n
    All of the approximately 5,000 stocks, 16 sector groups, 140 industries, and 600 ETFs have been updated on\u00a0<\/b>www.ValuEngine.com<\/b><\/a><\/h5>\n
    Financial Advisory Services based on ValuEngine research available through\u00a0<\/b>ValuEngine Capital Management, LLC<\/b><\/a><\/h5>\n
    Free Two Week Trial to all 5,000 plus equities covered by ValuEngine\u00a0<\/b>HERE<\/b><\/a><\/h5>\n
    Subscribers log in\u00a0<\/b>HERE<\/b><\/a><\/h5>\n","protected":false},"excerpt":{"rendered":"

    Do Not Be Alarmed By the Closing of JP Morgan Indexed ETFs.\u00a0 I say this even as I say that I believe this may be part of an emerging trend.\u00a0 Many mutual fund companies that are known for touting active management but stuck their feet in the water with ETFs will likely follow suit.\u00a0\u00a0 The … Read more<\/a><\/p>\n","protected":false},"author":7,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":[],"categories":[130,1,39],"tags":[1925,1916,1955,1704,2042,1761,1719,1731,2037,2038,2036,2041,2040,1510,1713,2039,1934,28,1656,1659,63,1768,1915],"_links":{"self":[{"href":"http:\/\/blog.valuengine.com\/index.php\/wp-json\/wp\/v2\/posts\/2954"}],"collection":[{"href":"http:\/\/blog.valuengine.com\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"http:\/\/blog.valuengine.com\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"http:\/\/blog.valuengine.com\/index.php\/wp-json\/wp\/v2\/users\/7"}],"replies":[{"embeddable":true,"href":"http:\/\/blog.valuengine.com\/index.php\/wp-json\/wp\/v2\/comments?post=2954"}],"version-history":[{"count":5,"href":"http:\/\/blog.valuengine.com\/index.php\/wp-json\/wp\/v2\/posts\/2954\/revisions"}],"predecessor-version":[{"id":2960,"href":"http:\/\/blog.valuengine.com\/index.php\/wp-json\/wp\/v2\/posts\/2954\/revisions\/2960"}],"wp:attachment":[{"href":"http:\/\/blog.valuengine.com\/index.php\/wp-json\/wp\/v2\/media?parent=2954"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"http:\/\/blog.valuengine.com\/index.php\/wp-json\/wp\/v2\/categories?post=2954"},{"taxonomy":"post_tag","embeddable":true,"href":"http:\/\/blog.valuengine.com\/index.php\/wp-json\/wp\/v2\/tags?post=2954"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}