Is JPMorgan Diversified Return U.S. Mid Cap Equity ETF (JPME) a Strong ETF Right Now?

The JPMorgan Diversified Return U.S. Mid Cap Equity ETF (JPME) was launched on 05/11/2016, and is a smart beta exchange traded fund designed to offer broad exposure to the Style Box - Mid Cap Blend category of the market.

What Are Smart Beta ETFs?

Market cap weighted indexes were created to reflect the market, or a specific segment of the market, and the ETF industry has traditionally been dominated by products based on this strategy.

Market cap weighted indexes work great for investors who believe in market efficiency. They provide a low-cost, convenient and transparent way of replicating market returns.

But, there are some investors who would rather invest in smart beta funds; these funds track non-cap weighted strategies, and are a strong option for those who prefer choosing great stocks in order to beat the market.

Non-cap weighted indexes try to choose stocks that have a better chance of risk-return performance, which is based on specific fundamental characteristics, or a mix of other such characteristics.

While this space offers a number of choices to investors, including simplest equal-weighting, fundamental weighting and volatility/momentum based weighting methodologies, not all these strategies have been able to deliver superior results.

Fund Sponsor & Index

The fund is managed by J.P. Morgan. JPME has been able to amass assets over $219.07 million, making it one of the average sized ETFs in the Style Box - Mid Cap Blend. JPME, before fees and expenses, seeks to match the performance of the Russell Midcap Diversified Factor Index.

The Russell Midcap Diversified Factor Index comprises of mid cap US equity securities selected from the Russell Midcap Index. The Index is diversified across the following sectors: financials, technology, consumer services, health care, industrials, consumer goods, energy/ materials and telecommunication/utilities.

Cost & Other Expenses

When considering an ETF's total return, expense ratios are an important factor. And, cheaper funds can significantly outperform their more expensive cousins in the long term if all other factors remain equal.

With on par with most peer products in the space, this ETF has annual operating expenses of 0.24%.

JPME's 12-month trailing dividend yield is 1.86%.

Sector Exposure and Top Holdings

While ETFs offer diversified exposure, which minimizes single stock risk, a deep look into a fund's holdings is a valuable exercise. And, most ETFs are very transparent products that disclose their holdings on a daily basis.

JPME's heaviest allocation is in the Healthcare sector, which is about 14.90% of the portfolio. Its Consumer Discretionary and Information Technology round out the top three.

Looking at individual holdings, Teradyne Inc Common (TER) accounts for about 0.53% of total assets, followed by Resmed Inc Common Stock (RMD) and Kla Corp Common Stock (KLAC).

JPME's top 10 holdings account for about 4.61% of its total assets under management.

Performance and Risk

Year-to-date, the JPMorgan Diversified Return U.S. Mid Cap Equity ETF has lost about -10.71% so far, and is down about -4.73% over the last 12 months (as of 07/21/2020). JPME has traded between $42.43 and $71.93 in this past 52-week period.

The ETF has a beta of 1.14 and standard deviation of 22.29% for the trailing three-year period. With about 419 holdings, it effectively diversifies company-specific risk.

Alternatives

JPMorgan Diversified Return U.S. Mid Cap Equity ETF is a reasonable option for investors seeking to outperform the Style Box - Mid Cap Blend segment of the market. However, there are other ETFs in the space which investors could consider.

Vanguard MidCap ETF (VO) tracks CRSP US Mid Cap Index and the iShares Core SP MidCap ETF (IJH) tracks S&P MidCap 400 Index. Vanguard MidCap ETF has $33.23 billion in assets, iShares Core SP MidCap ETF has $43.12 billion. VO has an expense ratio of 0.04% and IJH charges 0.05%.

Investors looking for cheaper and lower-risk options should consider traditional market cap weighted ETFs that aim to match the returns of the Style Box - Mid Cap Blend.

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.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.