How big is the European ETF market and how fast is it developing?
The European ETF market now represents almost $812bn in AUM, growing at a rapid pace (+19% CAGR). So far in its development, Europe’s ETF market has mirrored the growth rates seen in the US market albeit in about a 7-10 year lag since its inception, leading PWC to predict it could reach $1.5trn in size by 2021.
Why would an active manager launch an ETF business?
Importantly, it is often a misconception that ETF = Passive. In fact we think of the ETF as an efficient vehicle and what you put inside the ETF as the investment engine. We have already shown that we can leverage passive, strategic and active capabilities across fixed income and alternatives and will continue to build out the range across all asset classes.
We don’t think of ourselves as just an “active manager”. We have a number of investment capabilities which span the spectrum from passive, strategic beta and active. We see the ETF wrapper as a technology to wrap these strategies in. Increasingly clients are looking to leverage this wrapper to build portfolios therefore we are working to develop our capabilities to better serve our clients.
We also focus on putting the client at the centre of the equation and by that we mean that 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.
Are you late to the ETF party?
Absolutely not. As mentioned we anticipate that the European ETF market will double over the next 5 years to 1.6 trillion while the global ETF market could also double to more than 7 trillion dollars. 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 product and strategies we can be building 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?
As aforementioned, 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: ‘BetaBuilder’ (pure passive), ‘Quantitative Beta Strategies’ (Strategic Beta) and Active.
The first five product launches included some of each, reflecting acute areas of client demand in each segment:
- Our ‘BetaBuilder’ brand launches into the passive segment of the market, offering clients the liquidity they desire in European Government Bonds.
- Our Strategic Beta offering consists of an Emerging Markets Sovereign bond ETF, helping clients capture EM exposure with the benefit of J.P. Morgan Asset Managements “risk aware” methodology.
- Lastly, in the active space, our QBS franchise launched two actively managed hedge fund strategies in ETF form; managed futures and long/short equity. We have also harnessed the expertise of our market-leading Liquidity platform in our Ultra-Short Income product, JPST.
Do we plan to roll out more?
Yes, we have an ambitious roll-out plan. The goal is to roll-out 50 ETFs within 3 years across our three ETF investment pillars:
- Plain vanilla with differentiation pricing/exposure
- Strategic Beta where clients can benefit from tilted exposure
- The full active capabilities of J.P. Morgan Asset Management in the ETF wrapper
All these funds will be transparent, liquid and operationally accessible.
 Source: Morningstar. Data as of May 2018. Considering Exchange Traded Funds domiciled in Europe. © Morningstar. All Rights Reserved. CAGR = Compound Annual Growth Rate, where the annual growth rate is adjusted to show the smooth growth of investment maintained through the specified time period.
 Source: PwC, “2nd Annual Global ETF Survey” 2015, www.pwc.com/us/etf. Opinions, estimates, forecasts, projections and statements of financial market trends that are based on current market conditions constitute our judgment and are subject to change without notice. There can be no guarantee they will be met.
 Source: PwC, “ETFs: A Roadmap for growth” 2016, www.pwc.com/etfroadmap. Opinions, estimates, forecasts, projections and statements of financial market trends that are based on current market conditions constitute our judgment and are subject to change without notice. There can be no guarantee they will be met.