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    1. Build your ETF Foundation

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    Build your ETF Foundation

    An evolution is happening in investing with the explosive growth of exchange-traded funds (ETFs). Explore below to learn the basics of this new investment vehicle and answers to common questions.

    DOWNLOAD FULL PRESENTATION

    What are ETFs?

    1. Like mutual funds, ETFs pool investor’s money into broadly diversified, professionally managed “baskets” of stocks and bonds.

    2. ETFs are bought and sold on an exchange, like a stock, giving investors access to markets and their money throughout the trading day.

    Number of ETFs and total ETF assets

     

    Source: ETF assets, Morningstar. Data from 12/31/97 to 09/30/21. Shown for illustrative purposes only.

    Percentage of portfolios invested in ETFs

     

    Source: Charles Schwab, 2021 ETF Investor Study. Shown for illustrative purpose only.

    Why are ETFs growing so fast?

    1. Efficient: ETFs are cost-effective and tax-friendly, allowing investors to keep more of what they earn.

    2. Tradable: ETFs can be easily traded throughout the day and turned into cash as needed.

    3. Flexible: ETFs offer access to virtually every market worldwide – with the flexibility to quickly move in and out of them as conditions change.

    How does an ETF work?

    The supply of an ETF’s shares can be increased or decreased to help keep its price in line with the value of its underlying portfolio holdings. For example, if many investors want to sell an ETF, its share price might fall below its basket’s value. Here’s how the process would work to reduce shares in those instances (green lines in chart):

    1. Market maker buys ETF shares, usually at a discount to basket value.

    2. Shares are redeemed by sending them through an Authorized Participant (AP) to the ETF issuer, in exchange for the underlying securities.

    3. Market maker sells those securities, usually for more than they paid for ETF shares.


    As ETF shares are bought and removed from the market, it helps drive prices back toward the basket’s value. The process happens in reverse when more shares are needed to meet buyers’ demands (blue lines).

    Creating and redeeming shares helps ETFs trade at prices close to the market value of their portfolio holdings

    Source: J.P. Morgan Asset Management. Shown for illustrative purposes only.

    Total assets by type

    Source: Morningstar. U.S. data from 12/31/97 to 9/30/21. Shown for illustrative purposes only.

    What types of ETFs are available?

    1. On one end of the spectrum are purely passive ETFs tracking broad market indexes. Passive Investing, or “indexing,” seeks to match the portfolio holdings and performance of a market benchmark, such as the S&P 500 Index.

    2. In the middle are Strategic Beta ETFs that combine elements of both passive and active investing.

    3. On the other end of the spectrum are active ETFs in which managers decided what securities to buy and sell. Active Investing seeks to achieve a specific outcome by picking only those securities considered most attractive.

    How are investors using ETFs?

    Nearly everyone can find a use for ETFs. The wide variety and versatility of ETFs allow them to play a number of different roles in an investor’s portfolio.

    1. Their ability to mirror broad stock and bond indexes make them good “building blocks” for a core portfolio.

    2. ETFs targeting specific regions, sectors and strategies can be used in several ways to enhance diversification. For example, they can complement core holdings, fill gaps, realign an unbalanced portfolio or provide access to otherwise hard-to-reach markets.

    3. Investors are also using ETFs to reduce costs and taxes. And because ETFs can be traded quickly and easily throughout the day, they’re effective vehicles for moving in and out of markets as new opportunities and risks arise.

    Shown for illustrative purposes only.

    • ETFs

    DISCLOSURES

    This material has been prepared for informational and educational purposes only. It is not intended to provide, and should not be relied upon for, investment, accounting, legal or tax advice
    Investing involves risk, including possible loss of principal. Shares are bought and sold throughout the day on an exchange at market price (not NAV) through a brokerage account and are not individually redeemed from the fund.
    International investing involves a greater degree of risk and increased volatility. Changes in currency exchange rates and differences in accounting and taxation policies outside the U.S. can raise or lower returns. Also, some overseas markets may not be as politically and economically stable as the U.S. and other nations. Emerging markets involve heightened risks related to the same factors as well as increased volatility and decreased trading volume.
    There is no guarantee the funds will meet their investment objective. Diversification may not protect against market loss. Opinions and estimates offered constitute our judgment and are subject to change without notice, as are statements of financial market trends, which are based on current market conditions. We believe the information provided here is reliable, but do not warrant its accuracy or completeness. References to future returns are not promises or even estimates of actual returns a client portfolio may achieve.

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    This website is a general communication being provided for informational purposes only. It is educational in nature and not designed to be a recommendation for any specific investment product, strategy, plan feature or other purposes. By receiving this communication you agree with the intended purpose described above. Any examples used in this material are generic, hypothetical and for illustration purposes only. None of J.P. Morgan Asset Management, its affiliates or representatives is suggesting that the recipient or any other person take a specific course of action or any action at all. Communications such as this are not impartial and are provided in connection with the advertising and marketing of products and services. Prior to making any investment or financial decisions, an investor should seek individualized advice from personal financial, legal, tax and other professionals that take into account all of the particular facts and circumstances of an investor's own situation.

     

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    INFORMATION REGARDING MUTUAL FUNDS/ETF: Investors should carefully consider the investment objectives and risks as well as charges and expenses of a mutual fund or ETF before investing. The summary and full prospectuses contain this and other information about the mutual fund or ETF and should be read carefully before investing. To obtain a prospectus for Mutual Funds: Contact JPMorgan Distribution Services, Inc. at 1-800-480-4111 or download it from this site. Exchange Traded Funds: Call 1-844-4JPM-ETF or download it from this site.

     

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