Introducing J.P. Morgan’s Climate-Friendly ETFs: JPCT and JSEG

JPM Carbon Transition Global Equity (CTB) UCITS ETF (JPCT)* and JPM Global Research Enhanced Index Equity SRI Paris Aligned UCITS ETF (JSEG)* have been designed to help investors replace, or supplement, existing core global equity allocations with diversified, climate-friendly portfolios driven by proprietary research.

Both funds comply with the emissions reduction and decarbonisation standards set by the European Union’s (EU’s) sustainable benchmarks regulation, providing certain level of accountability.

JPCT*: Lower carbon intensity, lower tracking error, lower cost

JPCT* tracks a customised index that meets the EU’s carbon transition benchmark (CTB) standards, while maintaining a tracking error to the MSCI World Index of around 1%. The CTB standards mean that JPCT* has a weighted average carbon intensity that’s at least 30% lower than the MSCI World Index and a self- decarbonisation rate of 7% year on year.

The portfolio leverages proprietary stock-level research and climate insights, combined with the data-science and portfolio construction expertise of J.P. Morgan Asset Management’s Quantitative Solutions team, to take overweight positions in companies, within each sector, that have the potential to benefit most from the low carbon transition – either by reducing emissions, managing natural resources responsibly or by managing transition risks effectively. Underweight positions are applied to companies deemed to be most at risk from the transition.

Thanks to its meaningful carbon reduction targets and its focus on companies that are best positioned for the move to a low carbon economy, JPCT* can help investors lower their carbon footprint and capitalise on the opportunities created by the energy transition theme. With a total expense ratio (TER) of just 19 basis points (bps), and sector and regional exposures in line with traditional global equity benchmarks, JPCT* can also help investors reduce climate-related risks to their portfolios by shifting their passive core equity exposure to a sustainable approach, without taking large sector bets.

JSEG: Combine the best of active and passive ETFs, sustainably

JSEG* is part of J.P. Morgan Asset Management’s pioneering research-enhanced index strategy, which has been at the forefront of active ETF investing in Europe for the last five years and has grown into the largest active equity UCITS ETF range (according to Bloomberg, as of 31 January 2024).

JSEG* works by transforming the traditional global equity benchmark into a sustainable index by excluding certain unsustainable stocks and sectors (subject to thresholds), and by applying the EU’s Paris-aligned benchmark (PAB) criteria, which means the portfolio will have a carbon intensity that’s at least 50% lower than the MSCI World Index and a self-decarbonisation rate of 7% year on year.

Based on this sustainable investment universe, small overweight and underweight positions are applied at the stock level, driven by rigorous security analysis (including the systematic consideration of ESG factors). Robust risk controls help to keep the fund’s tracking error below 2%, while allowing for exclusions and the application of PAB criteria.

JSEG’s low TER (25bps) can help investors build a climate- aware core global equity exposure that’s driven by active insight. The fund’s sustainable benchmark means it may also appeal to investors looking for a socially responsible investing (SRI) approach that can tolerate exclusions, particularly to the energy sector.