JPMAM, other managers find success with active ETFs

Some of the exchange-traded fund industry's more recent entrants are building their businesses and even eclipsing the growth rates of its three biggest players — BlackRock Inc., Vanguard Group Inc. and State Street Global Advisors — albeit from much smaller asset bases.

For example, J.P. Morgan Asset Management, which launched its first ETF in 2014 and managed just over $1 billion in by the end of 2016, ended 2021 with $78 billion of ETF assets worldwide, about half in active funds and up 57.4% from a year earlier, data from Pensions & Investments' annual survey of the largest money managers show.

JPMAM's growth rate topped that of Vanguard, which had the highest growth rate of the big three last year and added more than $600 billion in AUM. Vanguard's worldwide ETF assets totaled $2.21 trillion as of Dec. 31, up 38% from a year earlier. SSGA posted a 30.1% growth rate, with $1.18 trillion in assets. BlackRock, which remained by far the world's largest ETF provider, ended 2021 with $3.27 trillion in ETF assets, up 22.4% from $2.67 trillion a year earlier.

Stocks had a "great year" in 2021, which saw the S&P 500 index post a 28.7% total return, providing a tailwind for ETF assets, according to Todd Rosenbluth, head of research at VettaFi LLC, a data, analytics and thought-leadership company. Asset growth results from both net inflows as well as appreciation in underlying assets, which means that an ETF provider's product mix can impact its asset growth rate in years when certain asset classes outperform others, Mr. Rosenbluth said.

While the top-three ETF providers saw "tremendous" growth last year, it was encouraging to see significant growth at firms outside the big three, with some midtier firms "growing at an even faster clip," Mr. Rosenbluth said. Citing P&I's data, he noted that in addition to JPMAM, Fidelity Investments and Northern Trust Asset Management each posted growth rates last year north of 40%.

Fidelity's ETF AUM increased 44.9% to $34.9 billion during the year, while Northern Trust was up 41.2% to $20.1 billion.

"And so, there's room for growth for the more midsized ETF providers," he said. "Obviously, it's easier off of a lower asset base to grow, but I think that's still impressive."

Fidelity launched its first ETF in 2003, while Northern Trust launched its FlexShares family of ETFs in 2011.

JPMAM's growth rate was the biggest of the top 10 managers, according to P&I's data, save for Amundi, which posted a nearly 143% growth rate. On Dec. 31, Amundi and Societe Generale announced the closing of Amundi's acquisition from Societe Generale of Lyxor, one of the key players in the European ETF market. In the initial announcement of the deal, Lyxor had €124 billion ($152 billion) in AUM as of Dec. 31, 2020, including €77 billion in ETFs.

As money managers known historically for mutual funds continue to build out their ETF lineups, Mr. Rosenbluth said he wouldn't be surprised to find names like Capital Group Cos. Inc. among the top 25 ETF providers five years from now. In February, Capital Group, home of American Funds, launched its first suite of active ETFs.

Active management will be key for midtier firms like JPMAM, Fidelity and others seeking to gain further ground in the global ETF league tables, he said. That's because even if they offer inexpensive, index-based ETFs in their lineups, it's extremely difficult for such firms to take share from the big-three ETF providers whose dominance in that area is well established, Mr. Rosenbluth said.

"I agree with that premise," said Daniil Shapiro, New York-based associate director in product development at Boston-based research and consulting firm Cerulli Associates. "If you are a legacy mutual fund manager who is trying to enter the ETF market, it's an obvious choice to use your active capabilities to offer your strategy, preferably in a transparent ETF structure."

While the passive ETF space is "very product saturated," it could still offer a path toward asset growth for some midtier ETF managers, provided they offer some type of "really niche" passive strategies, Mr. Shapiro said.

"But in general, if you're a legacy mutual fund manager, you want to offer an active strategy," he said.

"First and foremost, our emphasis is on active ETFs," said Jed Laskowitz, New York-based global head of asset management solutions at J.P. Morgan Asset Management, who oversees the firm's ETF business, when asked what drove JPMAM's 57.4% growth last year. "So, we have been focused on trying to identify the investment capabilities that our clients are looking for and the problems that they are trying to solve — like managing through volatility, finding yield — and launching strategies that meet those needs in the active ETF vehicle," he said.

JPMAM ranked as the top manager of active ETFs, according to P&I data, with $39.5 billion in active ETF assets under management as of Dec. 31, up 55% from $25.5 billion a year earlier.

Among the bigger contributors to JPMAM's growth last year was the JPMorgan Ultra-Short Income ETF, Mr. Laskowitz said. That fund, which recently marked its fifth anniversary, now totals about $19 billion in assets. It had $15.6 billion in assets as of Dec. 31, 2020. Another strategy that drove growth was the JPMorgan Equity Premium Income ETF, he said. That fund, launched in May 2020, has grown to $9.85 billion.

"Actively managed ETFs in 2021 were roughly 10% of industry flows and roughly 4% of assets," Mr. Laskowitz said. "So, the interest in active ETFs (is) growing."

While JPMAM also offers clients a series of passive ETF strategies that play an important role as asset allocation building blocks, most of its new product development efforts have been around active ETFs, he said. When it comes to institutional investors, Mr. Laskowitz said while they typically have been more focused on passive ETFs, he believes that as active ETFs build track records, "I do think institutional clients will find interest in active ETFs."

Looking ahead, a trend that Mr. Laskowitz expects to see continue is that of converting mutual funds into ETFs.

"I think that's a trend to watch because I do think that will likely become a bigger part of the ETF story," he said.

JPMAM last August announced plans for four such conversions and has since completed three. The fourth conversion, which will see the JPMorgan International Research Enhanced Equity Fund become the JPMorgan International Research Enhanced Equity ETF, is scheduled to occur on June 10.

Mr. Laskowitz declined to comment regarding any potential further conversions.