Consistently
outperforming
the
market
is
a
feat
many
strive
for
but
only
a
few
achieve.
However,
one
exchange-traded
fund
(ETF)
has
done
just
that,
beating
the
S
&
P
500
index
for
five
consecutive
years.
The
JPMorgan
US
Research
Enhanced
Index
Equity
ETF
has
beaten
the
benchmark
every
year
since
2019
and
is
also
outperforming
in
2024.
The
ETF,
which
charges
0.20%
in
fees,
trades
as
JREU
on
the
London
Stock
Exchange,
Borsa
Italiana
,
Deutsche
Borse
and
Six
Swiss
Exchange
.
The
fund,
which
currently
manages
$9.41
billion
in
assets,
employs
a
strategy
known
as
Research
Enhanced
Indexing
(REI).
This
approach
combines
index
investing
and
active
management.
Piera
Elisa
Grassi,
co-fund
manager
of
the
ETF,
said
while
the
fund
has
only
existed
since
2018,
the
concept
of
REI
is
not
new
to
JPMorgan
Asset
Management.
The
fund
manager
had
previously
used
the
strategy
successfully
to
manage
assets
for
institutional
clients
such
as
pension
funds.
In
fact,
it
dates
back
to
the
mid-1980s
in
the
United
States.
However,
it
wasn’t
until
2018
that
JPMorgan
decided
to
marry
this
time-tested
strategy
with
the
increasingly
popular
ETF
structure.
Raffaele
Zingone,
co-fund
manager
based
in
the
U.S.,
and
Grassi
also
manage
the
JPMorgan
Global
Research
Enhanced
Index
Equity
ETF
,
which
uses
a
similar
strategy
to
outperform
the
MSCI
World
benchmark.
What
exactly
is
REI?
Research
Enhanced
Indexing
is
very
similar
to
passive
index
investing
but
with
the
added
benefit
of
JPMorgan
Asset
Management’s
bottom-up
fundamental
research
and
risk
management
added
to
it,
according
to
Grassi.
The
“secret
sauce”
lies
in
the
fund’s
ability
to
make
numerous
small
bets
rather
than
a
few
large
ones,
according
to
the
fund
manager.
The
result
is
a
fund
that
closely
mirrors
its
benchmark
in
terms
of
overall
composition
but
with
slight
tweaks
aimed
at
generating
excess
returns.
A
quick
look
at
the
top
10
stocks
held
in
the
ETF
will
reveal
an
identical
list
of
stocks
to
those
in
any
S
&
P
500
tracking
ETF,
such
as
those
from
iShares
,
Vanguard
or
State
Street’s
SPY
.
However,
the
weighting
assigned
to
each
of
those
stocks
varies.
For
instance,
JPMorgan’s
ETF
is
overweight
Microsoft
shares
by
45
basis
points
compared
to
the
weighting
for
the
stock
in
the
iShares
Core
S
&
P
500
ETF.
Similarly,
Grassi’s
fund
is
underweight
Berkshire
Hathaway
by
21
basis
points
compared
to
the
iShares
fund.
While
the
difference
appears
trivial
for
the
larger
holdings,
the
actively
managed
ETF
also
omits
many
stocks.
JPMorgan’s
own
shares
are
excluded
from
the
fund,
as
are
GE
Aerospace
,
Applied
Material
,
and
Amgen
.
In
total,
it
holds
about
half
the
number
of
stocks
included
in
the
benchmark.
What’s
in
the
‘secret
sauce’?
Grassi
and
her
fellow
JPMorgan
Asset
Management
fund
managers
have
access
to
around
80
analysts
globally
that
research
up
to
30
stocks
in
“great
detail”.
This
extensive
coverage
forms
the
backbone
of
the
REI
strategy,
according
to
Grassi.
“The
vast
majority
of
the
secret
sauce
sits
within
the
DNA
of
the
fundamental
research
team
that
now
has
been
in
existence
for
more
than
30
years,”
Grassi
told
CNBC
Pro.
“This
is
something
that
we’ve
been
doing
for
a
long
time,
and
we
always
try
to
have
best-in-class
research,
and
that
becomes
the
raw
material
for
me
and
the
team
to
build
the
portfolio.”
JREU-GB
SPY
5Y
line
“It’s
always
been
an
active
strategy,
but
very
much
risk-constrained,”
noted
Grassi,
who
has
over
20
years
of
industry
experience.
Grassi
said
the
fund
can
also
withstand
hits
when
some
stock
calls
go
wrong,
due
to
the
disciplined
and
“process-driven
approach”
her
team
follows.
“We
don’t
expect
the
analysts
to
get
it
right
all
the
time,”
she
admitted.
“But
because
our
active
position
is
so
small,
we
can
take
it
on
the
chin.”
In
2024,
it
returned
16.66%
compared
to
the
S
&
P
500’s
16.48%.
As
always,
past
performance
does
not
guarantee
future
results,
but
the
track
record
certainly
warrants
attention.
