JP Morgan, the dominant player in the European active ETF market, has issued a notice to shareholders informing them that they are removing a long-standing constraint on investment in defence companies.

Previously, the 13 active ETFs concerned – along with a range of other funds – were restricted to a 10% revenue threshold for conventional weapons exposure, as well as restrictions on investment related to nuclear weapons.

From 16 February, the former will be removed completely, and the funds will be able to invest in issuers supporting nuclear weapons programmes in states within the Treaty on the Non-Proliferation of Nuclear Weapons (all the nuclear powers apart from North Korea, India, Pakistan and Israel).

The company says the move is driven by what it calls “client expectations related to defence preparedness” although stresses that the changes do not amount to a “material change” to how the funds are run. The changes affect 10 active ETFs in JP Morgan’s “research-enhanced” equity range, and three other funds, and are subject to approval from the Central Bank of Ireland.

Our view

Senior analyst David Batchelor said: “As the manager for 45% of the European active ETF market, whenever JP Morgan makes a change it is worth paying attention. The type of defence-related restrictions that JPM has removed from a number of its funds, including 13 active ETFs, has to me long felt like a hangover from the more innocent time before Russia invaded Ukraine and President Trump started to seriously undermine NATO. In today’s more dangerous world, western countries – particularly in Europe – clearly need to spend more on defence, and most fair-minded investors won’t see supporting that aim as an inherently bad thing, or even necessarily in conflict with ESG-focused investing. Anything that adds flexibility to the active ETF market is generally positive, and I suspect we will see similar moves from other providers.”