JPMorgan's active push for ETFs

Why JPMAM Bet on Active ETFs

The hot areas in asset management at the moment are cryptocurrencies and passive investing. At an event in London last week, George Gatch, CEO of JPMorgan Asset Management, explained why he doesn't do business with either, columnist Katie Martin writes.

JPMAM, as Gatch emphasized at several points, is an exclusively active investment house, with $3.1 trillion in assets under management. But that doesn't mean they ignore exchange-traded funds. far from it.

JPMAM is bringing on board ETF veteran John Mayer (former Chief Investment Officer of Global

Gatch set some aggressive goals. It currently manages about $160 billion through 100 (active) ETFs, a number it wants to increase to $1 trillion within five years. “This is one of the most fundamental changes in the asset management market,” he said, noting that mutual funds lost about $800 billion in assets last year, and ETFs — not coincidentally — are up. . . 800 billion dollars. Active ETFs may account for only about 7 percent of assets in ETFs, but they account for about a fifth of inflows, he said.

ETFs have been popular among US investors, accumulating about $2 trillion in net new dollars from 2021 to the end of 2023, according to data from Morningstar. Investors pulled about $1 trillion from mutual funds at that time.

Fixed income is also a special focus area for JPMAM. Active management trumps passive in fixed income, Gatch said. But active fixed-income ETFs have a place, and the US group is looking to bring about 30 fixed-income ETFs to the market by the end of this year.

However, he is clearly not looking to join the likes of BlackRock in launching cryptocurrency ETFs. (Earlier this month, Bitcoin's rally pushed BlackRock's new Bitcoin ETF past $10 billion in record time.) Gatch said he couldn't figure out a way to value these tokens as part of a long-term portfolio. . “We don't have one, so we're not launching a product of that kind.”

A European fund group warns of “systemic” risks posed by settlement reform in the United States

Asset managers are slowly waking up to the full implications of a move by the United States and Canada to shorten settlement times for stocks, bonds and exchange-traded funds, writes Mary McDougall in London. European institutions held more than $11 trillion in US stocks and debt last year, according to the Federal Reserve.

The US will shorten the period, when trades are matched and legally transferred from sellers to buyers, to reduce the amount of capital tied up until trades are completed. The shorter settlement time frame is known in industry jargon as T+1.

The shift in the US is likely to throw interconnected markets, such as the foreign exchange market, stocks and cross-border ETFs, out of sync. Custodians and asset managers relied on at least one full workday to solve operational issues, from finding funds or assets, resolving mismatches, or overcoming local IT issues.

Last week, the European Fund and Asset Management Association warned that looming changes in the time it takes to settle transactions on Wall Street pose a “systemic” risk to currency markets.

About 40 percent of daily foreign exchange trades will be closed outside the main currency trade reconciliation platform when the United States moves from two-day to one-day settlement in May, the industry body said. She added that this total could rise to “hundreds of billions” in volatile days.

The group, which represents the €28.5 trillion European investment industry, has asked major central banks, which jointly own the currency settlement service CLS, to implement urgent measures to address the risks. “The exposure of $50 to $70 billion or more at risk, on a daily basis, in the world's major currencies should be a major concern,” Ifama warned in research published on Thursday. “This has systemic importance.”

T+1 has been much discussed among traders and tech insiders, but it seems to have yet to receive much attention from the C-suite of most asset owners and asset managers, says Jim McCaughan, former CEO of a major US-based asset manager.

Is the asset management industry ready for T+1? Email me: harriet.agnew@ft.com

Chart for the week

A closely watched measure of stock market sentiment has reached its highest levels since 2008, as options traders increasingly focus on making further gains in rising indexes rather than worrying about a potential sell-off.

The roughly 25 percent rise in Wall Street's benchmark S&P 500 index since the start of November has missed traders who expected higher interest rates to lead to a recession, George Steer wrote in London.

Many are now picking up S&P index-linked options that pay dividends if the market continues to rise. Meanwhile, the strength of the rally, which came despite higher-than-expected inflation in January and February, means investors have largely chosen not to buy options that protect them from market declines.

Options are a type of derivative that give the right but not the obligation to buy an underlying asset at a certain price – a call – or sell an asset at a pre-agreed price – a put.

Puts are usually cheaper than puts, reflecting investors' typical preference to buy stocks and then cover their portfolio with puts.

However, this protection against index declines of less than 10 percent has become so cheap against the backdrop of the rapid rise in the US market that the so-called two-month skew – a measure of the difference between the implied volatility of puts compared to calls – for both the S&P & Poor's and the tech-heavy Nasdaq Composite fell to 16-year lows, according to Bloomberg data compiled by UBS. Implied volatility reflects the market's expectations of movements in a security's price over a specific period of time.

“There was a lot of fear of missing out, partly because it was a very strong rally, so the hedging for a lot of people is to make sure they have that upside covered,” said Gerry Fowler, equity and derivatives strategist at the Bank. UPS.

“No one is really worried about mini-recessions, so no one is interested in buying stocks,” he added. Read the full story here

Five stories not to miss this week

The board of Baillie Gifford's leading £14bn Scottish mortgage investment fund has announced a £1bn share buyback in a bid to support its share price, which is trading at a 13 per cent discount to its net asset value. The trust invests in high-growth companies like Nvidia and Tesla. “The stock market has not yet fully recognized their progress, which creates the opportunity for us to purchase the portfolio at below market value,” said Tom Slater, the fund's manager.

US institutions with private equity investments in China are struggling to exit what were once among their most successful bets as the regulatory environment tightens and geopolitical tensions rise. Four public pension plans that have committed more than $4 billion to China-focused private equity funds told the Financial Times they are prepared to delay redemptions from investments that are nearing the end of their 10-year lifespan.

Liontrust CEO John Ions recently approached smaller London-based rival Artemis Investment Management about a potential takeover and the two parties have been in early-stage discussions. But successfully combining fund management businesses is extremely difficult, and Liontrust's track record of hybrid acquisitions (seven in the past 12 years) shows how dealmaking is neither a panacea to industry challenges nor a guaranteed catalyst for growth. The ions look like “a little Martin Gilbert,” Lex says.

Sir John Armit, chairman of the National Infrastructure Commission, has criticized a drive to get pension schemes to invest more in Britain, saying there is “no reason” for funds to be nationalised. The UK government's chief infrastructure adviser said the private sector needed tens of billions of pounds to meet infrastructure needs, including energy upgrades and new hospitals and roads. But he added that it would not be appropriate for pension funds to simply invest in local markets due to ministerial pressures.

Smith & Nephew wants to increase the pay of its US executives to bring them closer to US levels, with Robert Soames, head of the FTSE 100 medical devices company, describing UK pay packages as “unsustainable”. The move represents the latest sign that major UK-listed companies with a large proportion of overseas revenues will try to challenge shareholders' reluctance to approve a pay rise at this year's AGM season.

And finally

With a new show of Frank Auerbach: The Charcoal Heads at London's Courtauld Gallery, the painter tells chief art critic Jackie Vollschlager why, at 92, he is so aware of the Old Masters.