Animal Spirits Podcast - Talk Your Book: J.P. Morgan's Guide to ETFs

Starting point is 00:00:00 Today's Animal Spirits Talk Your Book is brought to you by JPMorgan Asset Management. Check out JPMorgan.com slash Power of Active to learn more and make sure to check out their JPMorgan Guide to ETFs, which comes out on a quarterly basis on their website. Remember that's jp.morgan.com slash power of active. Welcome to Animal Spirits, a show about markets, life, and investing. Join Michael Batnik and Ben Carlson as they talk about what they're reading, writing, and watching. All opinions expressed by Michael and Ben are solely their own. opinion and do not reflect the opinion of Ridholt's wealth management. This podcast is for

Starting point is 00:00:34 informational purposes only and should not be relied upon for any investment decisions. Clients of Ridholt's wealth management may maintain positions in the securities discussed in this podcast. Welcome to Animal Spirits with Michael Ben. And today's show, we talk with John Mayer. He's the chief E.T.F strategist at JPMorgan Ascent Management. And also the lead singer of, sorry, can walk him. Okay. Salmon Concert once. And then Cheyenne, who said, who is the head of U.S. Investors Specialist, Global Fix Income Currency and Commodity Group at JPMorgan Asset Management. And we got to talk about the guide to ETFs. You know, I'm a guide to aficionado. I don't know if you know this about me. It started back

Starting point is 00:01:15 in the day, well, I don't know if this is a hundred percent accurate, but let's just go with it. It started with Dr. Kelly's guide to the markets. They branched out. They do guide to retirement, right? Guide to alternatives. Guide to ETFs. Which I think the is part of the lineup. So we go through that today. They have wonderful charts. It's, it's always a ton of stuff. And it's always, there's always a good little tidbit or piece of information in some of their, in these guides about like, oh, I've never thought about that way. I've never seen that before. And there was a lot of that today that we talked to on the podcast. We spoke, uh, on the pod last week. And we were talking, uh, Jeffrey Patack was engaged with us on Twitter, Jeffrey from Morningstar

Starting point is 00:01:53 about like, where is all the money coming from? Because these numbers, like the fact that VOO, the Vanguard S. P-500 index fund, ETF, is doubling the previous record flows. We had more inflows into ETFs this year than in the crazy times of 2021. And we're thinking like, all right, are these conversions and, you know, the guys done today shows that probably, that's probably not. I mean, it's a small part of it. So what is it? It's just, is it a reflection of animal spirits, pun intended? Is it just, these are just, better structures, and I think it's all the above. It's a host of things.

Starting point is 00:02:35 Yeah, I think maybe it is that a lot of these, a lot of these ETS that are getting the biggest inflows, they're just, they're new products. So the one, the biggest one that surprised me that we actually didn't get to on the show was they show global ETF AUM over time. So there's roughly $10 trillion in the U.S. There's more than $14 trillion globally. And they show going back to 2014 is how far the data goes back. It was like a little over $2 trillion in global ETF assets then.

Starting point is 00:02:58 So it's gone from $2 trillion, yeah, to $14 trillion. It's like 20% Kager compounded in a growth rate for those who don't know. And the growth rate has actually been bigger for the rest of the world than the U.S. So when the rest of the world is grown 26 percent, and the U.S. has grown 18%. They were coming from a smaller base, but that actually surprised me. So ETFs are not just a U.S.-based phenomenon. They're growing like gangbusters around the world as well. Yeah.

Starting point is 00:03:21 So, all right, we got into a lot of it. Don't want to step up too much on the material. With no further ado, here's our conversation with John and Cheyenne. gentlemen welcome to the show thank you for having us thank you all right yesterday on animal spirits ben and i were talking about uh the record setting year of inflows that we're seeing in 2024 i think it's like nine hundred twenty one billion dollars into ets and surpassing 2021's record and we're like how where is all this money coming from and one of the areas that i'd be curious to to get some insight on is how much of this is like mutual fund conversions from the likes of dimensional funds and

Starting point is 00:04:02 others? Or is that not part of the equation? Is this really like net new money? So I don't know who wants to take this first, but where is all this money coming from? Yeah, I think I'll take a shot at this. This year, it's been a record flows, like you said. It's like almost a trillion dollars. It's amazing. And I don't think it's coming from conversions to our mutual funds. certainly some former mutual fund consumers are buying ETFs because of the benefits of the ETF structure. But I think that is really the answer is that the benefits of the ETF structure is really being made apparent liquidity, transparency, tax efficiency.

Starting point is 00:04:40 But people are just discovering that? Well, I think there's a few things that are going on to play. First of all, the active story really is starting to resonate. So you have $10 trillion dollars in assets. in the U.S. 8% of those assets are inactively managed ETFs. But this year, 30% of the flows have been at active. So, like, why is that? I believe the answer is two things. One, there's an acceptance by portfolio managers that it's okay to reveal your underlying portfolio. Nobody cares. Like, good luck trying to replicate like a thousand different fixed income

Starting point is 00:05:17 securities in an ETF. Like, go for it. If you can do that, great. That's one thing. The second is there were regulatory changes that occurred in 2019 that facilitated active managers getting into the space. That was step one. Step two is that you're now coming up with three and five-year track record. That enables many of the active managers to get on existing platforms, some of the large wirehouses. So I think that is really helping to accelerate the growth, combined with the fact that you have these unique benefits. benefits of the ETF structure. So, no, they're not just discovering the ETF structure,

Starting point is 00:05:56 but there's a few other parallels or verticals that play. This is like a consolidation story maybe then, because there's all these different funds that you have. You have closed-end funds. You have mutual funds. You have all these different, maybe people in individual securities, I guess maybe some of the people that would have been stock picking in the past go, why am I going to pick a handful of stocks when I can just buy a basket in an ETFs? Is that, is it a consolidation story? So I think it's, there's two things that play. One is it's a realization story and one that there's access to managers that weren't previously available, particularly on the active side. And once that some folks accepted

Starting point is 00:06:36 that the ETF structure is more tax efficient, it's a better structure. Now I can access these great managers using that structure. I think that's accelerating the story. Shian, do you think that this is reflective of investors' appetite for risk or is that really not the story here? Is it just, listen, money's always coming into the market, bond stocks, and this is just a preferred vehicle. And maybe before you answer that, I'll give you a data point from our friend Todd Sown over at Strategicus. He shared a chart showing the cumulative mutual fund flows going back to 1984. And if you look at equities, I mean, I'm sure you've seen a chart like this. It's just rolling over. There's a lot of money coming out of mutual funds. So is it less

Starting point is 00:07:15 a reflection of investor appetite and more just where investors are allocating their money? So are we get to see record flows every year? I think it's partly a reflection of both, right? So you have portfolios that are generally maybe a bit more conservative, you know, whether you think about, you know, the elections, uncertainty around the Fed and whatnot. And so you have risk taking coming back to the market. And I think the preferred vehicle of choice has been increasingly in the ETF wrapper. And it was a good point that Ben brought up in terms of the application of the ETF structure. When you look at fixed income in particular, it is pretty interesting where it's a highly diverse and segmented market, which on a bond by bond basis can be really

Starting point is 00:07:53 tough to transact. It's relatively liquid. So the ETF structure was revolutionary in the sense of providing liquidity to the fixed income market and a much easier way to transact in that market. The first kind of manifestation was in a passive sense. And now you're seeing the active piece pick up. And I think, you know, Mike, exactly like you noted, you know, there's an element of risk taking. So you look at the benchmarks in fixed income. There's not a lot of risk and those benchmarks outside of duration, interest rate risk, right? You don't have the level of credit risk maybe you'd want in

Starting point is 00:08:23 today's environment if your expectation is around a soft landing. So it's pretty wild. I pulled up some stats, but you look at just within fixed income within ETFs this year, 34% have gone into active versus 15% last year. That represents $93 billion year to date

Starting point is 00:08:39 versus $33 billion last year, just into active fixed income ETFs alone. So, Mike, to answer your question, I think it's a bit of both in terms of flows into the space, but then also the ETS being a preferred wrapper. And you meet with different platforms, different RAs and advisors, it's an easier way to transact. Operationally works out quite well. So I think there's a variety of factors, as John has noted. I want to get into the fixed income side of things. But first, on your guide to ETF, you have this chart in here on

Starting point is 00:09:08 thematic ETF AUM. And this really surprised me looking at this. I've never seen it like this. So you showed this chart, and it looks like a meme stock chart, basically. So in 2020, thematic ETFs had, I don't know, $2530 billion under management. Then it shot up immediately to almost $130 billion. Now it's come down and basically level off. And even though there's more ETFs in the space in terms of the numbers, the thematic AUM has declined and kind of sputtered, which is surprising to me. Because I would have assumed that more of the active money would have been going into these thematics.

Starting point is 00:09:45 What happened here? Was it just sort of a meme stock thing where people got really excited about these kind of plays and then they gave up on them a little bit? Well, allow me to answer. I know you guys would interview you. But Ben, that was the arc complex. That was the five arc products. Well, not exclusively.

Starting point is 00:09:59 I think that started it. And then you saw a lot of issuers get into the thematic space. You saw a ton of new issuance in the thematic UTF space, whether it be robotics or AI or EVs. And then COVID happened. and there was just a huge appetite for risk. And then 2022 happened. And then you saw a huge fall off in assets and thematics. Remembering thematics are typically small and midcap companies, and they certainly got beaten up.

Starting point is 00:10:31 And then the AI story, there was the intersection of the AI story, and the thematics really just became AI and 10 stocks. And I think that really kind of changed the story of like, am I going to go buy solar or wind or or a robotic CCF? for them, like, just to buy something that has Navidium, Microsoft, and Google in it. And I think that's what happened. Balchunas tweeted yesterday, VOL, watch, that's Vanguard's 500, S.P 500, ETF. He said VLO is a day or two away from hitting $100 billion in Unity, it flows an absolutely absurd fee. The old record is $50 billion set last year.

Starting point is 00:11:05 So we doubled the old record into Vanguard's S&P 500 ETF, the most boring, obviously most liquid, like most traditional ETF. And then you have things like invidious 2X levered ETF, which now has more assets. Todd's own tweeted this. Now is more assets than ARC, which is kind of wild. And then you've got everything in between. So you mentioned like a year like 2022, there's innovation serving investors. So 2022 was a huge year for income oriented products.

Starting point is 00:11:34 Obviously, your JEPI product was the kingmaker that year. And then there's been a lot of innovation in that space. There's been the Buffard ETF. So I think you're right, like Bautunas calls them the hot sauce ETFs. There's so many different flavors of active that are really like having a moment right now. Yeah, no, I think that's fair. And to your point about the S&P 500 ETFs doubling in assets, you know, you should be concerned there because what's driving performance in the S&P 500?

Starting point is 00:12:03 It's 10 names, right? There is evidence the market breadth is widening out. As market breadth widens out, that's what we're. where you want an active manager. Sure, you're going to be still exposed to the beneficiaries of the AI story, but there's another 490 stocks that potentially have some opportunity. And when as implied correlations are declined, and you have the opportunity with stocks moving in different directions to outperform, that's where the benefits of an active manager, combined with active managers getting more into the ETS space from the mutual fund business, that's why you're seeing

Starting point is 00:12:43 kind of this large flows into actively managed ETFs. You have a chart in here that shows all the key players in the active ETF space. And it's kind of interesting to me because it's not like the biggest mutual fund players are the biggest ones in the active ETF space. And so the top of list is DFA and then J.P. Morgan is second in First Trust and Avantis. And it's, I think for people outside the investment industry would be kind of surprised by the names. How did J.P. Morgan build this? And where, like, what's the breakdown of assets here in terms of, I guess, like stocks and bonds and active versus other types of funds? Well, you know, I think that 2019 was really an inflection point. So first of all, J.P. Morgan has been involved in ETFs for the past

Starting point is 00:13:26 decade or so. But, you know, we have a deep bench of active managers. And we've always been very successful in the mutual fund arena. Now, the regulatory changes in 2019 that allowed for custom and kind basket, negotiated basket, additional tools to portfolio managers, that was kind of the realization moment that, well, this business is probably changing over time. And given that this structure and the benefits of the structure and given that 85% of the secondary training occurs on the secondary market, which would allow portfolio managers to more efficiently manage their portfolio, gave us the insight into saying, well, this is where the market is heading because of the benefits, the improvements in the structure, the modernization of the structure.

Starting point is 00:14:20 And so over time, you know, we've come out with different strategies that use our existing bench of active managers into this kind of more modern structure. And other players, like you mentioned on this list, I certainly saw that as well. But we are really leaning into it because that structure is just a better structure. And if you look at the capital gain story is always a story, right? So in 2023, about 100 of 3,500 ETFs paid a capital gain, both active and passive. Not many. Mutual funds, 30% in 20, 23, much higher in previous years.

Starting point is 00:14:59 So it all comes back to, we're leaning. into this, the better structure and the future. And I think that's what's happening. So you talk about the better structure. Active mutual funds have had outflows forever, active ETFs. It just seems like the money is just pouring in every year. So you guys have a chart showing U.S. ETFs and mutual net flows by year. And every year, there's positive flows into ETFs. And we talk a lot about Josh wrote a piece like a long time ago called the Relentless bid, how advisors are allocating money. And it's just, it's, it's, it's, it's, it's, Just, there's no selling from advisors, the people that control most of the money.

Starting point is 00:15:35 But like, is it possible to have net outflows out of ETFs? I guess I'm trying to figure out like, is where is the money coming from? Is it just people making money and investing it? Is it that simple? First of all, there's a lot of money in money markets right now. It's about $7 trillion. And there being, we believe that that cash should be allocated. On a passenger over to Cheyenne to talk about it.

Starting point is 00:15:58 And then in terms of money being allocated for. from cash and why cash should be moved to fixed income, different parts on the duration spectrum. But one other point is it's a newer market in terms of ETFs. ETFs are, yes, positive flows consistently since they've come out in 1993. We expect that to continue just because the dynamics. And yes, money, there's new money being made. There's existing money market to be deployed. There is a transfer of wealth.

Starting point is 00:16:28 So perhaps Cheyenne could kind of opine on that. I mean, one perspective also to add to that. I mean, think about what the Federal Reserve has done over the last decade, right? Injected a tremendous amount of money into the financial system. So there's a lot of money that needs to be put to work in addition to the $7 trillion that are sitting, you know, in money market cash-like instruments. So I think there is a strong bid there from a risk-taking, you know, perspective to that is driving these flows. So it's not totally, I don't think dramatically surprising, given how investor-poorferral. has have been positioned, but then also just the amount of money that needs to be put to work

Starting point is 00:17:05 is truly, it's tremendous. You guys mentioned the active fixed income space. I think a lot of people don't realize that when you buy a total, it's really easy to replicate the stock market, right? A total stock market index fund effectively is the total market. Maybe doesn't include some microcaps or pink sheets or whatever, but you can effectively get, you know, 99% of the stock market. When you buy a total bond market index fund, you're not, it's kind of harder to replicate that.

Starting point is 00:17:30 The aggregate is essentially what people look at as the total bond market, but you have a great chart in one of your white papers that shows, it says nearly half of the U.S. bond market is not represented in the Bloomberg U.S. Agribute Index. So no munis, no high yield, very little asset-backed agency. So it doesn't necessarily cover the whole market, which is, I guess, because the fixed income market is just a lot bigger. So maybe talk about how that fits into the idea of using active management and fixed income. Yeah, happy to talk to that. So exactly done, as you mentioned, the ag index, which is the broad representation of the U.S. bond market, only representing roughly half the market, which is an interesting thing to think about. And, you know, that index was conceived in the early 80s, right? And so back then, the most represented and liquid tradable areas, it's really treasuries, agency mortgages, and investment grade credit. So those are the three major components of roughly a third, a third, a third, that are represented. in the agribute index. You look at the broad market, you know, you mentioned kind of asset back. I mean, securitized credit alone is roughly a $3 trillion market. That's, you know, roughly 10% of that is represented in the ag index. High yield, not represented at all. So wait, sorry, I started to interrupt you.

Starting point is 00:18:47 Yeah, go ahead. So one of the reasons that a lot of these areas aren't in it is because they're newer, faster growing segments of the fixed income market and the index just never really adjusted. So it's two things. Yes. So it's the rules that have been put. in place at inception. But then also, particularly within securitize, you've had more issuance in 144A security. So these are more private placement securities as opposed to

Starting point is 00:19:11 going through broadly syndicated deals. And so 144A process doesn't mean it's lower quality. It just means it's issued via private placement. A lot more issuance has taken place in securitized via that process. So that's not inherently not included in the benchmark. It's a rule that's included in the ag index. So that's effectively why that whole segment of the market, a large proportion of that market is excluded. But yes, Ben, to answer your question, what was a broad representation of the market at that time?

Starting point is 00:19:39 It's not a true reflection of the market as it stands at the moment. It's a tough, I mean, look at the size of the global fixed income market. I mean, just to put in perspective, you know, it's $141,141 trillion in size. You have 3 million unique securities that are included in the global fixed income market, right? You compare that to the equity market, $150 trillion in size, 9,000 securities. You know, there is a lot of opportunity within fixed income from an active perspective, and it's tough for a benchmark to give full representation. In central, it's not just the ag, but you look at the front end of the curve.

Starting point is 00:20:14 There aren't great indices to position in the front end the curve either. What's your best approach or best reflection in the front end? It's really the one to three-year gov credit index, so half-government, half credit. not fully representative of the bond market and the opportunity that you can you can glean in the front end of the curve. So it's the structures that were put in place at inception of these benchmarks that are reflective. And you know, you have an index like the universal, for example, the aggregate universal. But even then you have marginal increase to high yield, marginal increase to emerging market debt. It's still very disproportionately skewed

Starting point is 00:20:48 towards duration risk as opposed to credit risk. You guys have a killer chart showing Treasury ETF flows since the Fed's first rate increase. And what jumps out to me are long treasuries. And people were talking about this, TLT in 2022. As these bonds got killed, you saw investors run into a burning building. And that never, ever happens. There's no other scenario where investors run into a fire. And they've continued to do so. It really stands out. If you look at like, so you plot long treasury, intermediate, short, ultra short. And this is the head scratcher. What do you think is going on here? I think one thing to think about within TL, you know, things like TLT or LQD, I mean, these ETS have grown into just as much financial instruments as they are investment vehicles. And the inherent investor

Starting point is 00:21:41 base is not only retail, but also institutional in nature. And so you have a lot of motivations that are maybe not purely economic in the sense of maybe liability-driven investing, for example. So I think you have a variety of investors in the space that are not investing on a pure kind of on an isolated basis just looking at TLT, but looking at maybe matching liabilities, matching risk within a portfolio. So that's one thing I would point to is the increasing, or the large representation of institutional investors, which use these ETFs as financial insurance. But John, would you add anything to that? Yeah, I mean, that's on point. So if you look at some of the larger ETFs like TLT or SPY, they do have, they're used for various different reasons. They're not just retail going into gain exposure to long duration necessarily.

Starting point is 00:22:31 And if you could identify the holding period for some of these, you would probably see that the holding period is rather short. So while long treasuries of late have not done well, they're being used for different reasons by different consumers. So back to the active fixed income thing. You guys have a great chart here that shows that most active fixed income managers actually outperform, which is the opposite of the equity space, usually. Equity managers have at a very hard time outperforming, especially the past 10 years or so where the biggest stocks have been the biggest winners. And so that's a hard.

Starting point is 00:23:02 But in the fixed income space, you see more outperformance. I don't have the exact numbers, but you kind of show a breakdown here. My question to you is, is that outperformance skill or is it taking more risk because you're going out on the credit spectrum? And maybe it doesn't matter because, you know, again, a lot of these benchmarks don't have all that, but how much of it is just taking different credit risks and does that really matter? Yeah. It's interesting in the bond market. I don't think it's necessarily reflection of taking more risk. I think it's being thoughtful with your risk and potentially looking both inactive plays within the index and then even moving outside the index. So for example, you know, one point I would bring up is the index itself due to its construction is, an index of adverse selection, as we'd say, in the bond market, where the index is going to be more geared to and have exposure to those borrowers that are more indebted, which is kind of

Starting point is 00:23:56 counterintuitive in nature. So you can actually, as an active manager, mitigate some of that risk, where, for example, investment grade credit where there's a larger proportion in Triple B, you can manage those risks from an active perspective and also take positioning within the IG credit market. So, for example, year-to-day, we've done quite well, overweighting financials, which have actually obviously done quite well post, you know, the election. The other thing to note within agency mortgages, for example, just given issuance and mortgages, right, what's the nature of mortgages in the index?

Starting point is 00:24:30 So this is the second most liquid asset class behind, you know, U.S. trade of debt. They're predominantly lower coupon mortgages. So you look at 2022, where rates moved higher. those mortgages on average lost 13% versus higher coupon mortgages lost roughly 7 to 8%. So for an active manager, it's not about taking on more risk. I can make the decision to say, I don't want to own those lower coupon mortgages. I'm going to replace that with higher coupon mortgages. And I can manage for that what they call negative convexity, that risk that mortgages

Starting point is 00:25:01 introduce as race move higher. But then, Ben, you're absolutely right, where you can move outside the constraints of the benchmark. So as I mentioned, you know, securitized credit is roughly $3 trillion market. So that doesn't necessarily mean taking on more risk, where you can sit in higher portions of capital structure, single a rated or higher, where you're getting very strong levels of collateralization, i.e. protection against credit risk. And you're getting paid a healthy spread on top of investment-grade corporate credit. So there's a lot of opportunities within fixed income that I wouldn't argue or necessarily

Starting point is 00:25:37 about taking on more risk, but actually expanding the toolkit where you can look to either actively manage within the benchmark constraints or look outside the benchmark for higher quality areas of the market that can give you a better return and yield relative to what's represented index. A good way to think about it is like where an index is most heavily trafficked by the benchmarks, by those passive investors, of course those areas are going to get bit up, spreads are going to get tighter. Those areas that are not representing a benchmark can actually introduce or provide some nice spread, some nice liquidity risk on top of what you're getting in the benchmark. So I think there's a broad opportunity set. It doesn't mean taking more risk.

Starting point is 00:26:18 When you look at your slide, the top 10 industry leaders, you break it down by overall ETF leaders by flows and then also active ETF leaders by flows. And to your point about bonds being such an area of demand from end clients, $82 billion in inflows, which is ahead of U.S. equity. It's number one. It's head of everything. I'm curious to So a lot of these bonds, has been mentioned, like, they don't trade ever. And so investors are finding liquidity and a better wrapper for this. Is the liquidity that's coming from ETFs influencing or making it easier for the underlying bonds to trade? First of all, I think any secondary ETF activity is added to from a liquidity perspective.

Starting point is 00:26:58 You know, we've seen in the past where liquidity mismatches arise. And market makers are actually able to utilize the ETF for the price discovery. to manage risk exposure. During periods of market stress, one that comes to mind is COVID, the Fed purchased high-yield ETFs, investment rate corporate ETFs because the underlying market wasn't trading. And the ETF vehicle became the price discovery mechanism and became the new bid for the underlying components. I forgot about that. That really made a lot of people mad when they did that. Yeah, it did. Yeah, but it gave a price to the bonds. And, um, helped move the market. It was $9 billion, small by comparison on what was going out of the time,

Starting point is 00:27:44 but it certainly helped get the market going. It's also an advantage for the PMS because under normal conditions, it helps promote tighter spreads for the end investor. So I think there's a lot of positives that the ETS structure adds to the underlying bond market, particularly those parts of the bond market that are less liquid, like high yield, like investment-grade corporate. This is sort of neither here nor there, but you guys have a slide on here talking about what themes are, and it says U.S. technology rate of adoption, and it shows the first year that it was commercially available. Whose idea was it to put flush toilet on here?

Starting point is 00:28:25 That's a huge innovation, Michael. So anyway, yes. It took a while to adopt, guys. It's true. It's pretty wild. Some of these different technologies took quite some time. Electrism took like 80 years. I'm not sure if I have electricity. I do have electricity on there. So one area that's, I don't know if it's getting adoption, but it's certainly getting some buzz and we'll probably roll out at some point next year are private investments, really, really

Starting point is 00:28:53 illiquid securities going inside a liquid wrapper. I am not sure how I feel about this, but I'm not the expert here. I would love to get your guys take. What I would say, I think in the last 20 years, I think have proven out that fixed income can live in the ETF wrapper, where there was a lot of questions around that. And to your point, Mike, what we found, you know, in various points of all that fixing, that the wrapper can be additive from a liquidity perspective, right? And the next evolution is the move towards active, right, and using that wrapper for fixed income in an active sense. And that's what's getting proved out at the moment. The next frontier, yeah, it's probably, you know, inclusion of some type of private credit. But that's a tough proposition, right, in the sense

Starting point is 00:29:33 of, you know, providing liquidity at a time when liquidity is needed and given the liquidity profile, the wrapper as a whole, I think there's a lot to be determined there. And obviously, the SEC plays a large role there. You know, the AP obviously, and its relationship, you know, is important. I don't know how that works necessarily. So if anything, I would place more question marks. I know this is a delicate issue. Yeah. Compliance-wise, but I'll just say that it's going to be hilarious when you see some of these private credit ETFs down 25% and the actual private credit stuff is flat. I think they're going to start slow.

Starting point is 00:30:10 I think the prospect is zero to 15%. I'm sure it'll be in single digits for quite some time to get until there's a understanding of the market or going through some periods of market stress to see what happens. The other big growth area in recent years is just the use of derivatives. And Michael talked about Jepi, is it still the largest active ETF? Yes, it is. Does that make sense that we'll see more options, strategies available? Because that's as far as I know, something that's relatively new as well.

Starting point is 00:30:40 Well, success breeds success. So there's always followers when certain strategies are doing well. I think it's likely you'll see different types of derivative products, whether it be covered calls or buffered ETFs. You also have to think about kind of the changing demographics and the need for high income. And once you get used to and the understanding of these types of products, they're very appealing in terms of, you know, you're giving up some upside for getting that higher distribution rate, somewhat cushioned on the downside to the extent the option premium received. So typically, you don't see outflows in these products. We have not experienced them yet.

Starting point is 00:31:21 So it's fair to say you're going to see more. The demographic tailwind for this for these are strong. Guys, how often are you putting out these guide to the ETFs? I joined J.P. Morgan until under a year ago. We just launched our second edition of the guide TTFs, and it's going to be launched on a quarterly basis. And just kind of a little plug for the product or the educational component, it's really to kind of provide insights about the ETF marketplace.

Starting point is 00:31:49 As the ETF marketplace becomes the dominant structure, the go-to structure, we at JP Morgan just felt like there was a need and a demand for more education. And if you, as you know, as you look through it, it's product agnostic, just like our guide to markets, our guide to alt and guide to retirement. It's designed to help everybody understand the UTF market. So that's the goal. As a builder of charts, I have a lot of respect for the charts that you guys create. It's very, it's very kind on the eyes. And it's very, yeah, it's very useful to people like us in the industry for sure.

Starting point is 00:32:21 Yeah, every quarter, you'll get a new one. We just came out in the last version on the 12th of November. All right. So this is primarily a tool for. our financial advisors. I know we get a lot out of it. How do people find it? Where do we send them? You could get it on the JP Morgan website. You can download the Insights app. I know I'm not supposed to say this, but you can also just Google guiding T apps. All right. Well, we will help you. That's what I usually do. Yeah. We'll put a link in the show notes for listeners. So

Starting point is 00:32:49 John and Cheyenne really appreciate the time today. Thank you for coming on. Thanks for having us. Great being here. Thank you. Okay. Thank you to John and Cheyenne. Remember, check out JPMorgan.com. slash power of active to learn more. Also look for that JPMorgan's guide to ETFs, which is great. Email us, animal spirits at the compound news.com. Investors should carefully consider the investment objectives and risks as well as charges and expenses of the JPMorgan ETF before investing. The summary and full prospectuses contain this and other information about the ETF. Read the prospectus carefully before investing.

Starting point is 00:33:23 Call 1-844 for JPM ETF or visit www. www.com.com to obtain a prospectus. Source Morningstar, JEPI-UM based on 2023, global, actively managed ETF AUM as of 1130, 24. Equity, premium income ETF, JEPI risk summary. The price of equity securities may fluctuate rapidly or unpredictably due to factors affecting individual companies as well as changes in economic or political conditions. These price movements may result in a loss of your investment. Investments in equity-like notes, ELNs are subject to liquidity risk, which may make ELNs difficult to sell and value. Lack of liquidity may also cause the value of the ELN to decline.

Starting point is 00:34:06 Since ELNs are in note form, they are subject to certain debt security risks such as credit or counterparty risk. Should the prices of the underlying instruments move in an unexpected manner, the fund may not achieve the anticipated benefits of an investment in an ELN and may realize losses, which could be significant and could include the fund's entire principal investment. investing evolves risks, including loss of principle. JP Morgan Distribution Services is a member of FINRA.

Animal Spirits Podcast - Talk Your Book: J.P. Morgan's Guide to ETFs

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