Smart beta insurgents must take 'sophisticated' approach: buyers
Fund buyers have said a JPMorgan Asset Management foray into the exchange-traded funds (ETFs) and smart beta market would need to offer something different in order to be successful, given an increasingly crowded marketplace.
JPMAM recently announced plans to grow its passive investment unit aimed at developing future ETFs and smart beta products. The project is set to begin in the US and is likely to be introduced in Europe at a later date.
However, the fund house could be late to the market, given rival firms are already established in the space: BlackRock’s iShares dominates the ETF and smart beta markets and fellow US outfit Vanguard is a behemoth in the tracker fund space. Other providers, such as Canada’s BMO Global Asset Management, are already launching smart beta ETFs for UK and European investors.
JPMorgan has begun making inroads into the area by buying a stake in provider Global X, but has also committed to building internal capability. However, in a market where providers are engaged in a race to the bottom on fees, new entrants may not be able to achieve long-term value without significant scale or unique selling points.
Darius McDermott, managing director at FundCalibre, said: “JPMAM will have witnessed the success BlackRock, Fidelity, HSBC and Legal & General have had with passive products and is looking to get into that market.
“It’s a matter of looking at JPMAM’s track record, its credibility, and what the firm is doing differently.”
Tilney Bestinvest head of investment research Ben Seager-Scott welcomed more offerings, but warned that JPMAM should avoid being lured into launching products that track mainstream indices and instead focus on the smart beta space.
Mr Seager-Scott added: “I would be surprised if it looked to take on the big incumbents by opting for the ‘stack ’em high, sell ’em cheap’ approach of launching mainstream indices with single-digit [basis points] charges. It’s more likely it will look to the slightly more sophisticated, rules-based [smart beta] products.”
In a recent report from Morningstar, the ratings agency said smart beta ETFs had continued to gain market share from traditional index-tracking products, accounting for 7.5 per cent of the European ETF industry, and this swelling had already attracted new players to a space where iShares holds a 44 per cent market share.
Jed Laskowitz, JPMAM’s co-head of global investment management solutions, said the move to buy a stake in Global X was part of the company’s aim to become a bigger player in the passives market.
“Investing in Global X augments our strategy by expanding and deepening our participation in this fast-growing industry,” Mr Laskowitz said.
“This investment complements the growth of JPMorgan’s own ETF line-up, with seven strategic beta [products] launched and many more to come.”
The company continued to launch the JPMorgan Diversified Alternatives ETF in the US, its first actively managed ETF, bringing its total line-up of smart beta and active products to 10 with more than $900m (£733m) in assets under management.
However, a JPMAM spokesperson declined to provide details on plans to expand its offering in Europe, noting that, to date, the company has focused on the US when rolling out ETFs and passive strategies.
