How big is the European ETF market and how fast is it developing?

The European Exchange Traded Fund (ETF) market now represents almost USD 812 billion in assets under management, growing at a rapid +19% compound annual growth rate1. So far in its development, Europe’s ETF market has mirrored the growth rates seen in the US market, albeit with about a seven- to 10-year lag since its inception, leading PWC to predict it could reach USD 1.5 trillion in size by 20212.

Why would an active manager launch an ETF business?

It is a misconception that ETF equals passive investing. We think of the ETF itself as an efficient investment vehicle, and what you put inside the ETF as the investment engine. We have already shown that we can leverage passive, strategic beta* and active capabilities across fixed income and alternatives, and will continue to build out our ETF range across all asset classes.

We see the ETF wrapper as a technology to wrap these strategies in. With clients increasingly looking to leverage the ETF wrapper to build diversified portfolios, we are working to develop our capabilities to better serve these needs.

We are also focusing on putting the client at the centre of the equation. Clients have a lot of options to build portfolios and so we are using our investment capabilities, delivered through the ETF wrapper, to help them do this.

*Strategic beta ETFs (sometimes referred to as smart beta) aim to deliver some of the benefits of active management, such as reduced risk or improved returns relative to cap-weighted benchmarks, while at the same time providing greater transparency and liquidity, and lower fees.

*Beta is a measure of the volatility, or systematic risk, of a security or a portfolio in comparison to the market as a whole, it represents the tendency of a security's returns to respond to swings in the market.

Are you late to the ETF party?

Absolutely not. As mentioned we anticipate that the European ETF market will nearly double over the next four years to USD 1.5 trillion, while the global ETF market could also double to more than USD 7 trillion in the next five years3.

We observe that in many ways the ETF wrapper is still very early in its adoption and so look to see huge growth going forward. We also think that we are only scratching the surface on the innovative products and strategies we can build for investors.

In Europe our clients are using ETFs as an asset allocation tool, and this is in line with providing our clients with “solutions” rather than simply “products”. With the overall objective of helping clients build better portfolios.

Which products have we launched and why?

Meeting client need lies at the heart of the product roll-out pipeline. Our client-centric approach throws a wide net, covering three core capabilities: pure passive strategies (which we have branded BetaBuilders); strategic beta; and active.

Our product launches have reflected acute areas of client demand in each core capability segment:

  • In the pure passive segment, our JPM BetaBuilders EUR Govt Bond 1-3 yr UCITS ETF (JE13, J13E), JPM BetaBuilders US Treasury Bond 1-3 yr UCITS ETF (JU13, JA13) and JPM BetaBuilders UK Gilts 1-5yr UCITS ETF (JG15) offer clients the liquidity they desire in short-dated European and US government Bonds.
  • In the strategic beta segment, our JPM USD Emerging Markets Sovereign Bond UCITS ETF (JPMB, JPBM) to help clients capture emerging market debt exposure with the benefit of J.P. Morgan Asset Management’s “risk aware” methodology.
  • In the active segment, we have two actively managed hedge fund strategies: JPM Managed Futures UCITS EFT (JPMF, JPGM) and JPM Equity Long-Short UCITS ETF (JELS, JPQE, JLES).
  • Also in the active space, we have harnessed the expertise of our market-leading global liquidity platform in our JPM USD Ultra-Short Income UCITS ETF (JPST, JPTS, JPPS), JPM EUR Ultra-Short Income UCITS ETF (JEST) and JPM GBP Ultra-Short Income UCITS ETF (JGST).

Do we plan to roll out more ETFs?

We have an ambitious roll-out plan. The goal is to roll-out 50 ETFs within three years across our three ETF investment pillars:

  • Our plain vanilla/passive funds will offer differentiation in pricing and market exposure
  • Our strategic beta funds will allow clients to benefit from tilted index exposure
  • Our active funds will provide the full active capabilities of J.P. Morgan Asset Management in the ETF wrapper

All these funds will be transparent, liquid and operationally accessible.