Looking to the future, JP Morgan launches new thematic ETFs, expanding sustainable investing opportunities for investors

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JP Morgan recently announced a new range of thematic exchange-traded funds (ETFs), offering investors access to alpha opportunities across a range of sustainable themes. Aptly named Sustainable Consumption ETF (CIRC), Social Advancement ETF (UPWD) and Sustainable Infrastructure ETF (BLLD), JP Morgan’s new fund line-up complements its existing offerings while aligning with major trends shaping the coming.

In recent years, environment, social and governance (ESG) has become a priority for investors and companies. In 2015, sustainable funds brought in $5 billion. But just five years later, in 2020, investments increased 900% to $51.1 billion, according to MSCI reports.

JP Morgan has responded to this surge in investor interest with a suite of themed ETFs targeting the sustainable investments that will shape the future. The three new thematic ETFs support the following themes:

  • Sustainable Composition (IARC): Invests in businesses that focus on efficiency and moving towards a more circular business model, such as those focused on sustainable design, materials like wood, water, agriculture, and recycling/reuse .
  • Social advancement (UPWD): Invests in businesses that help society survive and thrive, including those that meet basic needs such as essential amenities, housing or healthcare; as well as areas such as education, accessible finance and digital access.
  • Sustainable Infrastructure (BLLD): Invests in businesses that provide essential assets for a sustainable future, including environmental resilience (e.g. power/water/renewable infrastructure), social infrastructure and improved connectivity (e.g. data centers/logistics).

According to Katie Magee, thematic investing specialist at JP Morgan, thematic investing is growing in popularity.

“Looking broadly across the industry, we’ve seen significant growth in thematic assets. A key driver of this growth has been the ETF vehicle,” Magee said.

But many of these offerings have been passive, without periodic intervention by financial experts. JP Morgan stands out by using active thematic ETFs to meet investor demand for ESG investment vehicles.

According to Magee, active thematic investing is particularly suitable for targeted ESG objectives. “In traditional investing, you have a specific benchmark that you look at: a specific region, a sector, an area of ​​market capitalization. But in thematic investing, these ideas, solutions and innovations can exist anywhere.

But analyzing stocks in a huge category like sustainability or ESG, which can encompass anything from a recycling company to an organization promoting diversity in the workplace, requires sophisticated tools. In response, JP Morgan created ThemeBot, a natural language processing-based machine learning tool that helps a large, multidisciplinary team of portfolio managers and researchers select the best group of companies to promote growth around the theme. selected.

“You can look at renewable energy, recycling, cybersecurity, whatever the specific theme is, and ThemeBot will then analyze tens of millions of data sources,” Magee said.

After extensive fundamental research and due diligence, 60 to 120 stocks are chosen to be part of the thematic ETF, ensuring that only the best stocks are used.

By combining the structure of thematic ETFs with an active model, portfolio managers have more influence over the success of these ETFs. With an active model, these experts can take advantage of the broad nature of these themes to evolve with the market.

“For example, in our consumer ETF system, one of our sub-themes is water, around which you could build a whole fund. But we can also tap into sustainable food, sustainable materials or sustainable production technologies.

All three ETFs are now listed on the Nasdaq, bringing JP Morgan Asset Management’s full range of US ETFs to 48 products with over $78 billion in assets under management.

“For sophisticated investors looking for intentionality in sustainable investing, we are excited to offer sustainable strategies that leverage active managers,” said Bryon Lake, global head of ETF solutions at JP Morgan Asset Management.

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