Inside JPMorgan U.S. Mid Cap ETF

The broader U.S. market has been in a tight spot since the beginning of 2016 due to a host of global issues and uncertainty about the rate hike. Amid these concerns, mid-cap funds offer the best of both worlds, growth and stability when compared to small-cap and large-cap counterparts.

Mid-cap funds are believed to provide higher returns than their large-cap counterparts, while witnessing a lower level of volatility than small-cap ones. Given the swings in the broader market segment so far this year, mid-cap funds have garnered a lot of attention as they are not very susceptible to volatility (read: 5 Mid Cap Value ETFs Are Top Picks Now--Here is Why).

Recently, one of the renowned ETF issuers, JPMorgan (NYSE:JPM), introduced a product in the U.S. targeting the mid-cap space. The new product – JPMorgan Diversified Return U.S. Mid Cap Equity ETF (JPME)– hit the market on May 11. Below, we highlight the product in detail:

JPME in Focus

The fund seeks to track the performance of the Russell Midcap Diversified Factor Index. JPME does not seek to outperform the underlying index nor does it seek temporary defensive positions when markets decline or appear overvalued. Its sole intention is to replicate the constituent securities of the underlying index as closely as possible.

JPME is a well-diversified fund, where Westar Energy Inc. takes the top spot with 0.61% weight. Other stocks in the fund have less than 0.60% exposure individually. In total, the fund holds about 602 stocks.

Sector-wise, Consumer Goods gets the highest exposure with 15.5% of the portfolio. Utilities, Financials, Consumer Services, Health Care, Industrials and Technology also get double-digit exposure in the basket.

The fund has an expense ratio of 0.34%.

How Does it Fit in a Portfolio?

The fund is a good choice for investors seeking high return potential that comes with lower risk than their small-cap counterparts.

With the tone of the minutes from the April FOMC meeting, released last week, being more hawkish than expected, chances of a rate hike in the June meeting have gone up. This could be due to a series of recently released upbeat U.S. economic data (read more: Fed to Hike in June? Expected ETF Moves).

Meanwhile, global growth worries are still at large. So, mid-cap stocks with higher exposure to the U.S. markets than their large-cap counterparts look attractive at this point. Thus, the launch of the new ETF targeting the U.S. mid-cap market seems well timed.

ETF Competition

The newly launched ETF will have to face competition from mid cap-focused ETFs like iShares Core S&P Mid-Cap ETF (IJH). IJH is one of the most popular ETFs in the space with an asset base of $26.3 billion and average trading volume of 1.3 million shares. The fund tracks the S&P MidCap 400 index and charges 12 basis points as fees which is much lower than the aforementioned product (read: Should You Short S&P 500 with ETFs This Summer?).

SPDR S&P MIDCAP 400 ETF (MDY)is another popular fund in the space with an asset base of $15.3 billion and trades in a good volume of more than 2.1 million shares a day. The fund tracks the S&P MidCap 400 Index. The fund charges 25 basis points as fees (see Mid Cap ETFs here).

Apart from these, JPME could also face competition from iShares Russell Mid-Cap ETF (IWR) tracking the Russell MidCap Index. The fund has an asset base of $12 billion and volume of almost 359,000 shares a day. It has an expense ratio of 20 bps.

Thus, the newly launched fund is costlier than the popular ETFs in the space. So, the path ahead can be challenging for JPME.

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