An FAQ with Bryon Lake, Head of International ETFs, discussing the big topics surrounding the J.P. Morgan ETF offering and what active ETFs mean for Europe.
How big is the European ETF market and how fast is it developing?
The European Exchange Traded Fund (ETF) market now represents almost USD 812 billion in assets under management, growing at a rapid +19% compound annual growth rate1. So far in its development, Europe’s ETF market has mirrored the growth rates seen in the US market, albeit with about a seven- to 10-year lag since its inception, leading PWC to predict it could reach USD 1.5 trillion in size by 20212.
Why would an active manager launch an ETF business?
It is a misconception that ETF equals passive investing. We think of the ETF itself as an efficient investment vehicle, and what you put inside the ETF as the investment engine. We have already shown that we can leverage passive, strategic beta* and active capabilities across fixed income and alternatives, and will continue to build out our ETF range across all asset classes.
We see the ETF wrapper as a technology to wrap these strategies in. With clients increasingly looking to leverage the ETF wrapper to build diversified portfolios, we are working to develop our capabilities to better serve these needs.
We are also focusing on putting the client at the centre of the equation. Clients have a lot of options to build portfolios and so we are using our investment capabilities, delivered through the ETF wrapper, to help them do this.
*Strategic beta ETFs (sometimes referred to as smart beta) aim to deliver some of the benefits of active management, such as reduced risk or improved returns relative to cap-weighted benchmarks, while at the same time providing greater transparency and liquidity, and lower fees.
*Beta is a measure of the volatility, or systematic risk, of a security or a portfolio in comparison to the market as a whole, it represents the tendency of a security's returns to respond to swings in the market.
Are you late to the ETF party?
Absolutely not. As mentioned we anticipate that the European ETF market will nearly double over the next four years to USD 1.5 trillion, while the global ETF market could also double to more than USD 7 trillion in the next five years3.
We observe that in many ways the ETF wrapper is still very early in its adoption and so look to see huge growth going forward. We also think that we are only scratching the surface on the innovative products and strategies we can build for investors.
In Europe our clients are using ETFs as an asset allocation tool, and this is in line with providing our clients with “solutions” rather than simply “products”. With the overall objective of helping clients build better portfolios.
Which products have we launched and why?
Meeting client need lies at the heart of the product roll-out pipeline. Our client-centric approach throws a wide net, covering three core capabilities: pure passive strategies (which we have branded BetaBuilders); strategic beta; and active.
Our product launches have reflected acute areas of client demand in each core capability segment:
-
In the pure passive segment, our JPM BetaBuilders EUR Govt Bond 1-3 yr UCITS ETF (JE13, J13E), JPM BetaBuilders US Treasury Bond 1-3 yr UCITS ETF (JU13, JA13) and JPM BetaBuilders UK Gilts 1-5yr UCITS ETF (JG15) offer clients the liquidity they desire in short-dated European and US government Bonds.
-
In the strategic beta segment, our JPM USD Emerging Markets Sovereign Bond UCITS ETF (JPMB, JPBM) to help clients capture emerging market debt exposure with the benefit of J.P. Morgan Asset Management’s “risk aware” methodology.
-
In the active segment, we have two actively managed hedge fund strategies: JPM Managed Futures UCITS EFT (JPMF, JPGM) and JPM Equity Long-Short UCITS ETF (JELS, JPQE, JLES).
-
Also in the active space, we have harnessed the expertise of our market-leading global liquidity platform in our JPM USD Ultra-Short Income UCITS ETF (JPST, JPTS, JPPS), JPM EUR Ultra-Short Income UCITS ETF (JEST) and JPM GBP Ultra-Short Income UCITS ETF (JGST).
Do we plan to roll out more ETFs?
We have an ambitious roll-out plan. The goal is to roll-out 50 ETFs within three years across our three ETF investment pillars:
-
Our plain vanilla/passive funds will offer differentiation in pricing and market exposure
-
Our strategic beta funds will allow clients to benefit from tilted index exposure
-
Our active funds will provide the full active capabilities of J.P. Morgan Asset Management in the ETF wrapper
All these funds will be transparent, liquid and operationally accessible.
1 Source: Morningstar. Data as of May 2018. Considering Exchange Traded Funds domiciled in Europe. © Morningstar. All Rights Reserved. CAGR = Compound Annual Growth Rate, where the annual growth rate is adjusted to show the smooth growth of investment maintained through the specified time period.
2 Source: PwC, “2nd Annual Global ETF Survey” 2015, www.pwc.com/us/etf. Opinions, estimates, forecasts, projections and statements of financial market trends that are based on current market conditions constitute our judgment and are subject to change without notice. There can be no guarantee they will be met.
3 Source: PwC, “ETFs: A Roadmap for growth” 2016, www.pwc.com/etfroadmap. Opinions, estimates, forecasts, projections and statements of financial market trends that are based on current market conditions constitute our judgment and are subject to change without notice. There can be no guarantee they will be met.
This is a marketing communication and as such the views contained herein are not to be taken as advice or a recommendation to buy or sell any investment or interest thereto. Reliance upon information in this material is at the sole discretion of the reader. Any research in this document has been obtained and may have been acted upon by J.P. Morgan Asset Management for its own purpose. The results of such research are being made available as additional information and do not necessarily reflect the views of J.P. Morgan Asset Management. Any forecasts, figures, opinions, statements of financial market trends or investment techniques and strategies expressed are, unless otherwise stated, J.P. Morgan Asset Management’s own at the date of this document. They are considered to be reliable at the time of writing, may not necessarily be all-inclusive and are not guaranteed as to accuracy. They may be subject to change without reference or notification to you. It should be noted that the value of investments and the income from them may fluctuate in accordance with market conditions and taxation agreements and investors may not get back the full amount invested. Changes in exchange rates may have an adverse effect on the value, price or income of the product(s) or underlying overseas investments. Past performance and yield are not a reliable indicator of current and future results. There is no guarantee that any forecast made will come to pass. Furthermore, whilst it is the intention to achieve the investment objective of the investment products, there can be no assurance that those objectives will be met. J.P. Morgan Asset Management is the brand name for the asset management business of JPMorgan Chase & Co. and its affiliates worldwide. To the extent permitted by applicable law, we may record telephone calls and monitor electronic communications to comply with our legal and regulatory obligations and internal policies. Personal data will be collected, stored and processed by J.P. Morgan Asset Management in accordance with our EMEA Privacy Policy www.jpmorgan.com/emea-privacy-policy. As the product may not be authorised or its offering may be restricted in your jurisdiction, it is the responsibility of every reader to satisfy himself as to the full observance of the laws and regulations of the relevant jurisdiction. Prior to any application investors are advised to take all necessary legal, regulatory and tax advice on the consequences of an investment in the products. Shares or other interests may not be offered to or purchased directly or indirectly by US persons. All transactions should be based on the latest available Prospectus, the Key Investor Information Document (KIID) and any applicable local offering document. These documents together with the annual report, semi-annual report and the articles of incorporation, are available free of charge from your financial adviser, your J.P. Morgan Asset Management regional contact, the fund’s issuer (see below) or at www.jpmorganassetmanagement.ie. In Switzerland, JPMorgan Asset Management (Switzerland) LLC, Dreikönigstrasse 21, 8002 Zurich, acts as Swiss representative of the funds and J.P. Morgan (Suisse) SA, 8 Rue de la Confédération, 1204 Geneva, as paying agent of the funds. This communication is issued in Europe (excluding UK) by JPMorgan Asset Management (Europe) S.à r.l., 6 route de Trèves, L-2633 Senningerberg, Grand Duchy of Luxembourg, R.C.S. Luxembourg B27900, corporate capital EUR 10.000.000. This communication is issued in the UK by JPMorgan Asset Management (UK) Limited which is authorised and regulated by the Financial Conduct Authority. Registered in England No. 01161446. Registered address: 25 Bank Street, Canary Wharf, London E14 5JP. Material ID: 0903c02a821a23ca