JPMorgan AM surges to dominance in Europe active ETF market

JPMorgan has carved out a dominant place in Europe’s nascent marketplace for actively managed change traded funds, far surpassing the extent in its US house market the place it manages the most important such car.

The financial institution’s asset administration arm boasted a 44.2 per cent market share in Europe on the finish of March, in response to figures from Morningstar, far forward of Pimco, with 14.6 per cent and Constancy with 11.1 per cent.

The general market dimension stays small, at €33.8bn unfold throughout 87 lively ETFs, however it has expanded by about €10bn up to now 12 months.

Within the US, the place ETFs have tax benefits over mutual funds, serving to gas their progress, JPMorgan’s Fairness Premium Revenue ETF (JEPI) alone is nearly as massive as your complete European lively ETF market, with belongings of $33.8bn.

Within the US market, the place JPMAM is the quantity two participant to Dimensional Fund Advisors, lively ETFs held $530bn of belongings on the finish of 2023, in response to Morningstar, 8.5 per cent of a broader ETF market as soon as seen as synonymous with low-cost passive funding.

Travis Spence, head of Europe, the Center East and Africa for ETF distribution at JPMorgan, mentioned in November that “we imagine the way forward for ETFs is lively and intend to proceed main the lively ETF revolution. 2023 has been a breakout 12 months for lively ETFs.”

Final month George Gatch, chief govt of JPMAM, mentioned that globally it managed $160bn in lively ETFs, a quantity it wished to extend to $1tn inside 5 years.

“This is without doubt one of the most elementary modifications within the asset administration market,” he mentioned, noting that within the US mutual funds shed about $800bn in belongings final 12 months, whereas ETFs gained about $800bn, with lively ETFs accounting for a fifth of all inflows to ETFs.

In Europe, the US home already has 5 of the six lively ETFs most owned by fund-of-fund managers, an necessary outlet for such funds, in response to Morningstar.

Varied world or regional variations of its research-enhanced fairness sequence, which seeks to “modestly” chubby shares deemed to be overvalued and underweight these seen as overvalued, with low monitoring error to the underlying index, have proved hottest.

This comparatively timid method to lively administration is symptomatic of the broader European lively ETF market up to now.

“The market appears to this point divided in two broad clusters. On one hand, a gaggle of low cost, low-tracking error merchandise typically meant to offer a broad, core publicity to the market phase: HSBC, JPM, Constancy, and Invesco stand out on this space,” mentioned Monika Calay, director of passive methods analysis for the Emea area at Morningstar.

These tightly constrained “shy lively” merchandise “provide a much less punchy entry level for buyers and permit for larger scalability, whereas the low charges make them extra aggressive in opposition to each conventional lively and passive propositions,” she added.

Constancy, for instance, sees “an attention-grabbing center floor between totally lively and totally passive portfolios”.

In the meantime “a second cluster contains extra area of interest and costly merchandise which have principally been launched within the final two years” and usually embody thematic and style-focused methods which have up to now attracted far fewer belongings.

This comparatively risk-averse method to lively investing chimes with probably the most profitable choices within the US, the place JEPI makes use of choices to cut back market threat, in contrast with an ordinary benchmark tracker.

US market chief Dimensional’s lively ETFs use factor-based funding approaches to tweak underlying benchmark weightings in an try to provide outperformance, reasonably than making the form of massive, punchy bets embraced by a home akin to Ark Make investments, whose flagship Ark Innovation ETF (ARKK) is now the seventh-largest lively fairness ETF within the US after enduring a gut-wrenching rollercoaster trip.

Within the US market as a complete, the weighted common lively share of actively managed ETFs — a measure of how completely different a fund’s portfolio is from its benchmark — is simply 50.3 per cent, in response to Morningstar calculations, in contrast with 62.4 per cent for lively mutual funds.

“Standard knowledge says that ETFs are finest suited to index-like methods with low lively share,” mentioned Bryan Armour, director of passive methods analysis for North America at Morningstar.

“Their transparency and incapability to shut [to new money, as mutual funds can] might pose capability issues for concentrated, excessive lively share methods that depend on a handful of finest concepts.”

Though lively ETFs comprise simply 2 per cent of the broader European ETF market, Calay predicted this might rise, rising competitors for JPMAM within the course of.

“The European lively ETF market is predicted to expertise accelerating progress as an rising variety of distinguished asset managers enter the sector,” she mentioned.

“Latest information has been flooded with bulletins from main gamers akin to Robeco, BlackRock’s iShares, Eurizon Capital, Ark Make investments and others, all both launching or planning to introduce lively ETFs in Europe. This curiosity from established establishments means that the lively ETF area is poised for growth.”

Market progress may additionally be aided by keener charges, with asset-weighted prices in Europe’s lively ETF market falling to a document low of 0.27 per cent of AUM by March 2024 from 0.41 per cent when Morningstar began monitoring this determine in 2013.

“I used to be somewhat bit shocked by that: 27 foundation factors is simply loopy for an lively fund. Lively ETFs are extraordinarily low cost,” mentioned Calay. Nonetheless, she was uncertain if charges would fall additional nonetheless.

“Sure there’s a race to the underside [on fees] however on the similar time purchasers’ wants are evolving,” Calay mentioned. “If their targets are extra on the sustainable aspect their purpose might not be the lowest-cost fund. They could produce other components in thoughts.”