J.P. Morgan Asset Management (JPAM) was a relatively late entrant to the exchange traded funds space in terms of bringing products to market for consumption by advisors and investors.
While the asset manager had long provided indexes for ETFs, including some popular funds, it wasn’t until June 2014 that the issuer brought its first labeled ETF to market. Despite that “delay,” JPAM is now the sixth-largest ETF issuer by assets – a testament to strong branding and stellar distribution capabilities. Getting to the sixth spot in just 11 years is impressive work.
One of the other big reasons JPAM has swiftly ascended the ETF issuer rankings is its strength in active management, particularly in the alternative income and bond realms. Today, JPAM is one of the largest issuers of actively managed ETFs – a status attained in large part by way of income-generating funds. So despite being tardy to the ETF party, JPAM has been at the right place at the right time, riding a groundswell of support of actively managed income products in the ETF wrapper.
The issuer recently added to its roster of actively managed fixed income offerings with a pair of ETFs that could be appropriate for the current environment and appealing to a broad swath of income-hungry clients. Let’s examine that duo here.
A Well-Heeled Junk Bond ETF
The JPMorgan Active High Yield ETF (CBOE: JPHY) debuted on June 25 and it came to market with $2 billion in assets under management thanks to backing “from a large institutional external client.” Based on annual expense ratio of 0.45% -- fair among active junk bond ETFs – and its current asset base, JPHY could be a tidy fee generator for the issuer.
Investors get a vehicle that attempts to beat the ICE BofA US High Yield Constrained Index, one that holds nearly 450 non-investment grade bonds and a deep bench of experienced managers.
“An expert approach to security selection is crucial in the high-yield market, where the asymmetrical return profiles of securities demands exceptional judgment and risk management,” according to a press release.” J.P. Morgan’s team of seasoned portfolio managers brings decades of expertise, stability and proven track records, including Robert Cook, Thomas Hauser, Jeffrey Lovell, John Lux, and Edward Gibbons.”
JPHY, which sports a net yield to maturity of 6.35%, allocates about 50.3% of its portfolio to BB-rated bonds with 9% to more speculative CCC and lower debt. Employing a bottom-up security selection process, JPHY is a departure from many of its established index-based rivals because it leverages active management to unearth attractively valued high-yield corporate debt – a potentially attractive trait for long-term investors.
An MBS Conversion
Mutual fund-to-ETF conversions are contributing mightily to the population growth in the actively managed ETF space and that’s especially true in the fixed income arena. JPAM is joining the party.
Last month, the issuer converted its JPMorgan Mortgage-Backed Securities fund (OMBIX) to the JPMorgan Mortgage-Backed Securities ETF (JMTG). That adds significantly to JPAM’s ETF assets under management as JMTG is a $5.78 billion ETF as of July 21. The conversion also provides advisors and investors with an established option, in ETF form, for accessing the mortgage-backed securities (MBS) market because in mutual fund form, JMTG was nearly 25 years old prior to the conversion.
As is the case JPHY, JMTG comes with the benefit of an experienced management team. The newly converted ETF, which charges 0.24% per year, holds 2,427 MBS with a duration of 5.98 years.
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