Active management is back in action.
J.P. Morgan Asset Management recently launched two new actively managed stock-based exchange-traded funds, a sign that issuers are looking to profit from more out-of-the-box strategies as the market grapples with unprecedented volatility.
Launched on May 21, the JPMorgan Equity Premium Income ETF (JEPI) and JPMorgan International Growth ETF (JIG) represent ways of “delivering the best of J.P. Morgan through the technology, the benefit-rich vehicle, of the ETF,” Bryon Lake, head of Americas ETF distribution at J.P. Morgan Asset Management, told CNBC’s “ETF Edge” on Monday.
JEPI is up about 2% since its launch date, while JIG has soared nearly 12.5%. Both ETFs are actively managed and transparent, which means they disclose their holdings daily.
JEPI “is an option overlay strategy, hopefully buffering investors’ income in these markets while also managing their downside volatility,” Lake said.
The strategy hinges on selling options and buying U.S. large-cap stocks, “seeking to deliver a monthly income stream from associated option premiums and stock dividends,” JEPI’s website says. JEPI has an expense ratio of 0.35%.
JIG is more focused on growth in developed and emerging international markets, Lake said. The ETF holds 58 stocks and has an expense ratio of 0.55%. Its top five holdings in order of weight are Alibaba, Tencent, Nestle, Taiwan Semiconductor and Roche.
“This goes back to putting the investor at the center of the equation and what investors are trying to achieve in their portfolios,” Lake said. “We have seen persistent flows towards passive over the last decade or so, backed up by strong markets, but we have seen extremely strong flows into active, active fixed-income in particular. At J.P. Morgan, we have an ultra-short strategy, JPST, that has also benefited from that, delivering a great outcome for investors. And now, we’re starting to deliver equity strategies through the ETF wrapper.”
Todd Rosenbluth, senior director of ETF and mutual fund research at CFRA, said investors seem to be embracing the idea that active managers could outperform passive funds.
“We certainly think there’s demand for active management in the ETF wrapper,” he said, noting that Ark Invest, which offers five transparent, actively managed ETFs, has had the tenth-highest amount of inflows so far in 2020, “ahead of some of the much larger, more established asset managers.”
Add in the issuers launching actively managed semi-transparent ETFs, which allow managers to disclose their holdings quarterly rather than daily, and it’s becoming clear that “there’s demand” for these products, Rosenbluth said.
“There are people who want to outperform the broader market, want the benefits of tax efficiency and the low-cost structure with ETFs,” he said. “This isn’t going to appeal to somebody who is excited that they got a three-basis-point product from iShares and Vanguard tracking the S&P 500. But for folks that want to try and outperform, … some of the proven strategies now exist in an ETF wrapper.”