JP Morgan Asset Management is to begin investing in its own ETFs via its target date funds, according to a Securities and Exchange Commission filing.
The target date series, which include the JPMorgan SmartRetirement Blend funds, JPMorgan SmartRetirement funds and JPMorgan SmartSpending 2050 fund, currently invest only in JP Morgan strategies for underlying active sleeves and third-party ETFs.
The firm's multi-asset solutions team, which manages and oversees the target date series, has not used JP Morgan ETFs in the past because the firm has not offered them historically, according to a spokeswoman for the firm.
However, starting November 1, the multi-asset solutions team will be able to use JP Morgan ETFs should these funds 'meet the overall objectives of the portfolio,' the spokeswoman confirmed.
In addition, the target date funds will only invest in a third-party market-cap weigthed ETFs 'when an investment in a JP Morgan passive ETF is not available.'
In total the JPM target date funds have a combined $75 billion in assets under management.
Todd Rosenbluth, director of mutual fund and ETF research at CFRA said the move was a positive for both the liquidity of the JP Morgan ETFs and investors in the target date funds.
He said that over the past two years, JP Morgan has expanded its product line-up to include not just smart beta strategies but also more traditional market-cap weighted funds.
'Their market-cap weighted products are well-suited for asset allocation strategies and it's become increasingly common for asset managers that offer both mutual funds and ETFs to include ETFs in their target date or retirement vehicles,' said Rosenbluth, adding that iShares and Invesco were two such examples.
'Those investors are going to get the low-cost benefits of the ETF and the targeted exposure of the ETF without the same level of active management risk that comes from more traditional mutual funds,' he added.
JP Morgan Asset Management’s ETF unit, which counts 27 ETFs in total and $10 billion in assets, has had a good few months recently. The unit brought in $2.5 billion in assets alone in July, according to data from Morningstar.
Most recently, it took in $2.6 billion in assets just last week, according to a tweet posted by Bloomberg senior ETF analyst Eric Balchunas.
Unreal: JP Morgan ETFs took in $2.6b last wk which is 75%(!) of all net ETF flows even they only acct for 0.3% of total assets. So yeah, you don't see that everyday.. pic.twitter.com/HJYFpIO72e— Eric Balchunas (@EricBalchunas) August 20, 2018
Balchunas said the massive inflows were likely driven by JP Morgan advisors moving client money into in-house products. The JPMorgan BetaBuilders Japan ETF and JPMorgan BetaBuilders Canada ETF are the two fund that have raked in the most assets. Balchunas said this pointed to internal allcoations as there as 'nothing really happened in Japan and Canada that would spark that kind of flow of fund.'
'In-house, cheap core products... that's pretty smart actually,' he said. 'I would expect more and more firms to follow this model, which is to introduce your own cheap beta ETFs that your own advisors can use, and that can be potentially an Achilles' heel to the likes of BlackRock and Vanguard.'
Rosenbluth believes that the firm's shift to use its own ETFs in the target date series could represent an additional tailwind for JPMorgan's ETF business.
For example, one of the funds in the target date series, the JPMorgan SmartRetirement 2025 fund, had $7.82 billion in assets alone. Rosenbluth said that even if the portfolio added 25% to JPM ETFs, it would represent a significant amount of assets moving into the ETFs.