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J.P. Morgan Global Quantitative & Derivatives Strategy: Thematic Allocation Framework

Introduction

J.P. Morgan introduces the Quest allocation framework for thematic investing. It integrates growth and price trends to balance long-term fundamentals with near-term market signals, improving decision-making for investors. Thematic investing has grown significantly, but this structured approach addresses variability in theme performance.

Framework Components

• Growth Trends: Includes factors like forward earnings growth and earnings revision breadth, focusing on long-term viability and structural opportunities.
• Price Trends: Covers market-driven indicators, such as price strength and momentum, capturing short-term market activities.
• Scorecard for Thematic Assessment: Evaluates themes based on growth potential, earnings revisions, and price trends, with adjustments for liquidity-driven signals.
• Dynamic Allocation: Adjusts rankings using a multi-factor system, giving higher weight to themes with multiple drivers, such as Metaverse, E-commerce, and Cybersecurity.

Performance and Allocation Highlights

• Over the past decade, the framework improved risk-adjusted returns compared to benchmarks, with a return-to-volatility ratio of 0.86.
• In 2022, the defensive bias helped mitigate losses during rising interest rates, outperforming the benchmark by about 5%.
• Top-ranked themes include Metaverse and E-commerce, which outperformed the market in 2025.
• Sectors like Semiconductor and Broadline Retail gained prominence post-2020 due to technological and cyclical trends.

Implementation and Risks

• Themes can be implemented via derivatives like swaps, ETFs, or options on thematic indices.
• Risks include potential losses in options strategies, such as unlimited downside for uncovered calls or full premium loss for puts.
• Disclosures cover conflicts of interest, regulatory requirements, and legal considerations.

Conclusion

The Quest framework provides a disciplined, data-driven approach to thematic investing, enhancing opportunities while managing risks. Performance is sensitive to market conditions, and implementation requires careful consideration of structural and price factors.