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JP Morgan benefits from the ETF explosion


J.P. Morgan Asset Management | Best Active ETF Issuer ($5bn+) | Best Emerging Markets Equity ETF Issuer ($100m-$1bn)

Active ETFs grew exponentially last year, and that trend continued into 2022 as challenging markets drive investors to look for opportunities to outperform the benchmark.

JP Morgan’s head of global ETFs, Bryon Lake, global head of ETF Solutions, says the “numbers speak for themselves”.

“Active ETFs are dramatically outpunching their weight. They represent about 5 per cent of total ETF AUM but they’ve taken 12 per cent of the net flows year to date.”

JP Morgan’s ETF business, which launched six years ago and is a double award-winner this year, is among the asset managers benefiting from the ETF explosion.

The firm’s ETF offering currently stands at more than USD85 billion globally, running more than 30 strategies which are overseen by 1,100 investment professionals.

Lake points to three reasons for active ETFs’ popularity.

“Number one active ETFs meet an outcome such as downside protection, or unique exposure to an area of the market. Number two for income; there are a lot of investors who are still looking for income, no matter what the market environment and an active strategy can deliver that. Thirdly investors believe that there are opportunities to outperform the benchmarks and they are looking for those tools that can do that.”

Lake points to the performance from JP Morgan’s Active Value ETF (JAVA) which invests primarily in large- and mid-cap equity securities. The ETF has returned 3.51 per cent since inception versus -2.82 per cent from the Russell 1000 index.

Lake says active managers who understand the international markets have been particularly valuable this year, particularly those with a presence in the emerging markets.

“In the emerging market space that very apparent this year, whether it’s the geopolitical issues in Russia, or whether it is in the conversations to be had around China, having active management in the emerging market space that can navigate and understand those countries and the different companies within them is important.”

JP Morgan’s emerging active ETF (JEMA) invests primarily in equity securities economically tied to emerging markets. It seeks to outperform the MSCI Emerging Markets Index by allocating opportunistically in actively managed emerging market equity strategies across countries, regions, styles and all market capitalisations.

Lake says the managers running JEMA have “boots on the ground” in the emerging markets which gives them unparalleled access to company CEOs.

“Our ability to analyse companies and really understand an area, makes JEMA a compelling offering.”

Lake says the ETF sector will grow rapidly over the next five years to become a USD30 trillion market.

“The ETF industry continues to grow at an extremely fast clip, and we predict it will grow faster than 20% a year for at least the next five years to reach USD30 billion by 2030 globally.”

He adds: “Active ETFs will continue to grow faster than the broader industry at about of 30 to 40%.”

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