JPMorgan to give $1.7bn in active ETFs a passive makeover

JPMorgan will give three actively managed ETFs with a combined $1.7bn in assets a passive makeover, filings show.

The ETFs will become part of JPMorgan’s BetaBuilders family of traditional cap-weighted strategies covering various countries and regions, the firm disclosed on Friday.

The three funds are the firm’s $1.2bn US Aggregate Bond ETF, $418mn High Yield Research Enhanced ETF and $43mn Corporate Bond Research Enhanced ETF.

The US Aggregate Bond ETF will become the BetaBuilders US Aggregate Bond ETF on or about February 1, a regulatory filing shows.

The ETF currently invests at least 80 per cent of its assets in bonds denominated in US dollars, the filing says. Under its new strategy, which will become effective in February, the ETF will invest at least 80 per cent of its assets in securities included in the Bloomberg US Aggregate Bond Index.

The ETF’s portfolio management team will stay the same, filings indicate.

Its management fee will also be slashed from 7 basis points to 3bp, the filing notes.

Also in February, the High Yield Research Enhanced ETF will become the BetaBuilders USD High Yield Corporate Bond ETF, the filing notes. The ETF is actively managed and invests primarily in high-yield, high-risk debt securities. However, starting in a few months, it will track the ICE BofA US High Yield Total Return Index. In addition, its management fee will be reduced to 15bp, from 24bp.

And the firm’s Corporate Bond Research Enhanced ETF will be renamed the BetaBuilders USD Investment Grade Corporate Bond ETF, the disclosure says. The fund currently invests in corporate bonds with investment-grade ratings, as well as unrated securities that the firm’s advisers deem are “of comparable quality”.

Once the change goes into effect, the ETF will track the Bloomberg US Corporate Bond Index. Its management fee will be reduced to 9bp from 14bp.

The US Aggregate Bond ETF recorded net inflows of $287mn during the year ended November 30, according to data from Morningstar Direct. Meanwhile, the High Yield Research Enhanced ETF had net redemptions of $979mn during the same period, and the Corporate Bond Research Enhanced ETF saw net outflows of $2mn.

The change is the result of “ongoing reviews” of JPMorgan’s product line-up, a spokesperson said.

“Increasingly, portfolio managers are using active and passive capabilities, this is often driven by market conditions and asset class,” the spokesperson said. “We think these BetaBuilders products complement and show the differentiation we have with our active capabilities.”

BetaBuilders track broad market cap weighted index portfolios, said Ryan Jackson, manager research analyst at Morningstar.

“That’s just going to be your true bulk beta, your true passive exposure,” Jackson said. “That’s pretty much all that JPMorgan has in the way of true passive at this point . . . so this is just adding to that [and] building it out a little bit more.”

The BetaBuilders suite of 10 ETFs has been a “bright spot” in JPMorgan’s ETF roster since launching in 2018, Jackson noted. The ETFs had $28.1bn in assets as of November 30, he noted, accounting for about 30 per cent of JPMorgan’s total ETF assets.

“The Betabuilders ETFs are mostly newer funds on the block compared to some of those older offerings that JPMorgan rolled out,” Jackson said. “So when you compare the BetaBuilders’ ability to accumulate assets, with some other strategies that JPMorgan has rolled out — some of their multi factors, even their active ETFs — you’ve seen the BetaBuilders have a lot more commercial success.”

JPMorgan has one existing passive fixed-income ETF on its roster — the $38mn BetaBuilders 1-5 Year US Aggregate Bond ETF, Jackson noted. Investors piled $1mn into that ETF during the year ended November 30, Morningstar data show.

“These conversions plug a meaningful hole in their line-up, as investors have continued to clamour for passive exposure — especially in the fixed-income space of late,” Jackson said. “JPMorgan likely sees this as a way to keep assets from continuing to pour into the likes of Vanguard, iShares and State Street.”

JPMorgan launched its first five BetaBuilders ETFs in June 2018, its website shows. The suite was JPMorgan’s first foray into the pure passive ETF space. The series’ most recent rollout was the $471mn BetaBuilders Small Cap Equity ETF, which launched in November 2020, the ETF’s website shows.

Overall, the 10 ETFs bled $1.9bn during the year ended November 30, according to Morningstar, dragged down mostly by the $3.6bn BetaBuilders Europe ETF, which saw net redemptions of $4.4bn during the 12-month period. The remaining nine ETFs collected $2.6bn in net inflows during the same period.

Overall, JPMorgan’s 28 actively managed ETFs had a combined $49bn in assets as of November 30, Morningstar data show. They added $18.4bn in net inflows during the year ended last month. The firm’s 28 passively managed ETFs, including its BetaBuilders family, had a combined $38.1bn as of November 30. They bled $1.3bn during the year ended that date.

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