The JPMorgan Diversified Return U.S. Small Cap Equity ETF (JPSE) tracks a broad index of small-cap U.S. stocks. The methodology combines risk-based portfolio construction with multi-factor security selection based on value, momentum, and quality. The case for investing in small companies is growth potential. Mega-cap stocks that may have already hit their peak. The downside is that small companies also come with a fair amount of risk. Changes in regulations, economic circumstances, or access to credit could send share prices tumbling. While some exposure to small companies is standard for many portfolios, investors should avoid the risk of leaning too heavily on a notably volatile segment.
The ETF marketplace has seen an explosion in recent years in “factor” funds covering every asset class. JPSE’s competition includes the iShares Edge Multifactor U.S.A. Small-Cap ETF (SMLF), the First Trust Small Cap Core AlphaDEX Fund (FYX), the Goldman Sachs ActiveBeta US Small Cap Equity ETF (GSSC), and the John Hancock Multifactor Small Cap ETF.
JPSE is reasonably prices for a multi-factor ETF. As of June 2020, its management fee is a bit below the average for the ETFdb small-cap growth category. However, it is still considerably more expensive than ultra-low-cost rivals like the Vanguard Small Cap Value ETF (VBR) and the iShares Core S&P Small-Cap ETF (IJR), which is among the biggest in the small-cap segment.