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Olivier Pacquier, JP Morgan Asset Management

JPMAM’s Paquier comments on recent global ETF study and the rise of active ETFs

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The recent publication of the second edition of JP Morgan Asset Management’s (JPMAM) global ETF survey predicted strong growth in active and smart beta ETFs.

The recent publication of the second edition of JP Morgan Asset Management’s (JPMAM) global ETF survey predicted strong growth in active and smart beta ETFs.

Olivier Paquier (pictured), Head of ETF Distribution in EMEA, reports that the appetite for ETFs have been tremendous so far in 2020.

“My view is that this year is one for the record books, both globally and in EMEA,” he says. “Last year the ETF market had gathered USD200 billion globally to the end of August. By the same time this year, it had gained USD330 billion. When I speak with investors, I see it reflects these numbers; the appetite for ETFs has grown enormously.”

The global study identified three drivers behind the growth in demand for ETFs, with ESG coming out as the most important of these drivers.

“ESG works beautifully with ETFs,” Paquier says. “They give a different way of accessing the market because of the simple way investors can buy them through pressing a button or calling their broker, the ETF wrapper offers ease of access to underlying securities.”

Paquier reports that he is asked how ETFs will change the financial industry and believes that ESG is playing a role, plus the development of improved technology. Advances in technology from market makers, for instance, means that fixed income ETFs can now offer full transparency.

While ESG is the number one theme showing up in JPMAM’s research, active and smart beta also emerged as key themes for investors, with a prediction that close to half (40 per cent) of all client money allocated to ETFs will be in active or smart beta ETFs by 2023, according to survey respondents who are already regular users of active and smart beta ETFs. 

“The active ETFs are something completely new and there is lots of room for growth in that space,” Paquier says, also predicting that the next step in Europe could be the arrival of semi-transparent ETFs from the US, albeit there are many more regulatory hurdles to overcome in Europe.

JPMAM launched its first ETF in 2017. “We wanted to offer something different to the market,” Paquier says. The firm currently claims the number one position in asset gathering in Europe in active ETFs. Its ultra-short duration ETFs, cash plus products, have proven the most popular.

Whereas previously portfolios might have fallen into the 80 per cent passive/ 20 per cent active mould, he is now increasingly seeing a 60/40 split which, Paquier predicts, will bring about the continued evolution of the ETF market.

Fixed income has also proven its worth in the ETF industry, Paquier believes. “With other markets, especially in the fixed income space, you don’t get compensated for the risk you have to take. You are almost guaranteed to lose money if you go passive.”

“The corporate bond space is a good example of this. You ideally need professional analysts and investment teams analysing every single issuer of corporate bonds to help avoid the defaulting names and minimise any potential risks.”

This year, of all years, has demonstrated the need to mitigate risk during turbulence, he says. “Apprehending risk is getting paramount.”

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