Last week, JPMorgan announced in a press release that it plans to convert certain mutual fund products to active ETFs in 2022, a trend that is becoming increasingly common in the financial sector. The move would need to be approved by the fund board, but signals confidence in the active ETF structure and popularity of ETFs for investors overall.
JPMorgan is looking to convert four mutual funds, which collectively hold over $10 billion in assets, to active transparent ETFs early next year. The move is one that reflects a confidence in the ETF vehicle. It also forays into active management in the ETF space, an arena that has traditionally hosted passive investment management options.
“As a leading active manager, it is important to us that we continue to deliver our investment capabilities in the vehicle that meets our clients’ desired outcomes,” said Bryon Lake, Head of Americas ETFs at JPMorgan in the press release. "The intraday liquidity, transparency and potential tax benefits that come with ETFs carry significant value to many investors, and these particular strategies are well suited for the ETF structure."
The switch to ETFs, and actively managed ones at that, is becoming increasingly more common, particularly as the investment vehicle grows in popularity. According to Bloomberg, ETFs currently hold about $6.7 trillion in assets within the U.S. and continue to corner the mutual fund market. Last year ETFs had a $500 billion intake while mutual funds lost roughly the same amount. This year ETFs have brought in more than $530 billion annually, while mutual funds, primarily fixed income offerings, have brought in approximately $60 billion.
Bloomberg Intelligence estimates that over the course of the next ten years, active managers could add $1 trillion to the ETF industry via the conversion of mutual funds and internal asset moves to ETFs.
ETFs are attractive to investors and managers for a number of reasons: they are easier to access than their mutual fund counterparts, they have tax advantages that can save investors money, they often involve less paperwork, and they also typically cost less for investors. Bloomberg Intelligence calculated the average expense of an actively managed equity mutual fund is around 1.16%, while an actively managed equity ETF will cost 0.71% on average.
“Increasingly, we’re watching our clients — in addition to using mutual funds and other vehicles — continue to adopt the ETF vehicles and increasingly adopt active ETFs,” said Jed Laskowitz, global head of asset management solutions at JPMorgan.
T.Rowe Price believes in the difference that active management can make. The firms currently offers five different actively managed ETFs, with expense ranges from 0.34% with the T.Rowe Price U.S. Equity Research ETF (TSPA) up to 0.57% with the T.Rowe Price Blue Chip Growth ETF (TCHP). T. Rowe Price deploys over 425 investment professionals to the field for first-hand check-ins and research with companies they invest in, and employs seasoned portfolio managers, averaging 22 years in the industry and 17 years with T. Rowe Price.
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