ETF Edge - JPMorgan Launches Pair Of Active ETFs, 2020 Playbook

Episode Date: June 29, 2020

CNBC’s Frank Holland fills in for Bob Pisani this week and spoke with Todd Rosenbluth, senior director of ETF and mutual fund research at CFRA, and Bryon Lake, head of Americas ETF distribution at J.P. Morgan Asset Management. They discussed the return of active management as JPMorgan launches two active transparent equity ETFs, their outlooks for the second half of 2020 and work from home ETF's. Hosted by Simplecast, an AdsWizz company. See pcm.adswizz.com for information about our collection and use of personal data for advertising.

Welcome to ETF, Edge, your go-to place for everything, Exchange, traded funds. I'm Frank Holland in today for Mr. Bob Pisani. And this week brings a somewhat merciful end to the first half of 2020. For ETFs, some clear trends have emerged. The winner for inflows, that continues to be the bond market as the Fed buys up treasuries, corporate bonds and ETFs, as well as muni bonds. Most of the money and equities is going to those top plain vanilla index funds with Vanguard's ETF Suite capturing almost 40% of all inflows.

And joining me today to unpack all of this. Brian Lake, head of America's ETF distribution at JPMorgan Asset Management. And Todd Rosenblum, Senior Director of ETF and Mutual Fund Research at CFRA. Todd, we're going to kick things off with you. What's in store for the second half of 2020 if we have you look into your crystal ball? Well, first off, let's just recap, over $200 billion, billion with a B, has flown into ETFs, despite the fact that we emerged into a bare market and despite the fact that the volatility has picked up significantly.

investors rotated towards fixed income ETFs that you mentioned, like LQD and HYG, getting corporate exposure. They moved into gold products like GLD. And where we did see money going into international ETFs were some of these lower-cost products. J.P. Morgan has some of them. We think we're going to see continued growth. We could actually get closer to a record year in 2020 for ETF flows. If people who found ETFs during the market volatility continue to embrace them, retail and institutional investors, we think we're going to challenge the record year of a couple of years ago. All right. Turned out of Brian. Thanks for joining us. So you've said in the past that it's time to buy high quality. What do you mean by that? Kind of break it down for us.

It's certainly a pleasure to be here. So when we're thinking high quality, we're thinking about how our investors adapting their portfolios for what is the reality of an unprecedented time. Certainly, there's a lot of unanswered questions, and investors are thinking about what do they need to be doing in their portfolios. And so we know that we need to stay invested in equities. We've certainly seen a huge rally off the bottom. But how do we do that in a way that's thoughtful and articulates the view that we want to take on markets? And so quality is a great way to do that. It helps you identify the strongest balance sheets of companies that are going to benefit and hopefully come out of this as winners in the long run. Oftentimes investors will look at dividends for that, but with all the dividend announcements that we're seeing come through,

we think that that space is going to be challenged. And so when you can use an ETF like JQUA, JQUA from JPMO to help you identify the 100 strongest balance sheets that go across both tech, energy, and other areas, that certainly helps you to tilt your portfolios towards some of those names that could benefit in the long run. All right. Well, moving on, while passive funds, they remain overwhelmingly popular, more than 97% of all funds. active management. That seems to be coming back in really a big way. Brian, J.P. Morgan just launched two active, transparent equity ETFs. We've been covering active, non-transparent ETFs a whole lot on this show. Can you just briefly explain the difference and tell us about these two new products?

Yeah, well, this goes back to putting the investor at the center of the equation and, you know, what investors are trying to achieve in their portfolios. And Bob, we've said all along that the ETF is a technology. It's a wrapper. And it's the engine that you put inside of it, that delivers that outcome that you're looking for. And so to your point, we have seen persistent flows towards passive over the last decade or so, you know, backed up by strong markets. But we have seen extremely strong flows into active, active fixed income in particular. J.P. Morgan, we have an ultra-short strategy, JPST, that is also benefited from that delivering great outcome for investors. And now we're starting to deliver equity strategies through the ETF wrapper. And the way that we think about this is

This is just the way of delivering the best of J.P. Morgan through the technology, the benefit-rich vehicle of the ETF. So we've launched two active equity portfolios. They're both 100% transparent, meaning you can see their holdings anytime throughout the day on our website. So these are not delayed transparency or active non-transparent. These are daily transparent ETFs. We've done two of them, premium income, which is an option overlay strategy, hopefully buffering investors' income in these markets while also managing their downside volatility. as well as an international growth story, again, actively managed, which helps you navigate these interesting markets. Todd, turning over to you, as we mentioned, passive funds, they remain overwhelmingly popular. But what's your take on all this?

And where do you see this whole trend going? We certainly think there's demand for active management in the ETF Rapper. Arc funds, which has had products in the marketplace, fully transparent for six years, has the 10th highest inflows in 2020, ahead of some of those. much larger, more established asset managers. They are now a top 20 ETF provider. We've also seen, as we mentioned, these semi-transparent ETFs have come to market from American Century, from Leg Mason, from Fidelity, and we've got some other firms that are lining up to do this. We think there's

demand. There are people who want to outperform the broader market, want the benefits of tax efficiency and low-cost structure with ETS. 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 and p 500 but for folks that want to try to outperform as mentioned earlier some of the proven strategies now exist in an etf wrapper so speaking of iSharees we've seen some fees get cut in the etf world what's your take on that and how does that impact some of this passive versus active management trends so this is tremendous is a huge win for investors iShares on thursday cut the fee for ivv which is their s&p 500

based product, nearly $200 billion in assets went from four basis points to three basis points, IJR and IJH, which are the more mid-cap and small-cap-oriented products offering exposure are also cheaper. I-Share's is the leader in that space. We think this is in the mid-cap and small-cap tied to S&P 500. We think this is great. Investors are getting nearly free exposure to track prominent S&P indices in an ATF wrapper. All right, excellent.

So finally, let's check in on what's been going on with the work from home ETFs. It kind of seems like everybody's getting into this theme. Direction launched a work-from-home ETF last Thursday. BlackRock just filed for its own virtual work-in-life ETF. Todd, we're going to go back to you. Where do you stand on all this? So thematic ETF investing has been increasingly popular again. This time, actually, a rotation from individual stock selection and trying to pick a long-term theme

and getting the benefits of diversification from ETFs. You mentioned Direction has this ticker WFH, work from home, ETF that launched last week. You get exposure to established growth companies like Amazon and Alphabet, but more targeted companies tied to the work from home. I'm not zooming with you now, but I've been zooming throughout the day and using Box and other technologies that are out there. We're going to see more players into space.

I think more of the asset managers are going where the opportunities are. There's a product like Germ, GERN, that have been. emerged tied to how you can respond to COVID in the past week. We're going to see more of these thematic-oriented ETFs in response to the current environment. And I think in all investors benefit from these choices. Hey, Todd, really quick question before we toss things back over to Brian. A lot of these work-from-home ETFs and this theme, they seem to have a lot of those large-cap names that you can find in a lot of other ETFs. How do they in the long-term differentiate themselves from other ETFs that we see out there? No, I'm agreeing with a lot of the things that Todd just said,

you know, it just talks to the flexibility of the ETF wrapper and giving investors choice so that they can express reviews through their portfolio. So, yeah, of course, you're going to see some of those common names that are showing up with that. But, you know, whether that's quality or whether that's a thematic work for home play, what we do know is that investors like to own what they know and what they use. And so a lot of the same names are going to keep bubbling back up, whether that's the Amazon's the world or the fangs that can play into that. And so, you know, I think that ties to this whole theme of winners and losers. coming out of this crisis. And some of those work from home companies may benefit over the long term,

just given the structural shifts that we're seeing. So, Brian, does that mean you see this as a lasting trend, the one that will continue at least for the rest of this year? Well, that's a question that I don't think anybody knows the answer to, but I think that we've learned a lot over the last couple of years about how investors think about markets, how investors are behaving, given the recent volatility. And I do think that having the variety of ETF does help investors in the long run, whether that's, you know, somebody lowering prices or whether that's providing specific exposure to names that might benefit from work from home or whether that's doing things like providing premium income or active management, international growth. These are all great tools

for investors to build the portfolio to achieve the things that they're trying to do over the long haul. All right, Brian and Todd, thank you so much. That does it for this week's ETF Edge. I'm Frank Holland. Again, thanks to Brian and Todd for joining us today. We will see you next Monday. Same time, same place. Have a great week.