JP Morgan’s global head of ETF solutions Bryon Lake said that “everybody had a challenging year” in 2022. After all, bonds were down. Stocks were down. Geopolitical issues hit the globe.
“It was hard,” Lake told NYSE’s Judy Shaw at Exchange 2023.
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Now in 2023, Lake said that “everybody’s going back to the drawing board.” They’re asking: “’What can I do with my portfolio in 2023 to have the most success?’”
So, investors are doing two important things as they rethink their portfolios. One, “they’re embracing active management.” And two, they’re “thinking about fixed income.”
Regarding the former point, Lake noted that in 2022, active ETFs accounted for 15% of flows. At the time of the interview in February, they made up 23% of flows year-to-date.
“Why? Because investors want portfolio managers that understand exactly what’s in the portfolio,” Lake said.
With regard to the latter point, Lake said investors are thinking more about fixed income because “bonds are back.”
“There’s now yield in fixed income,” Lake said.
Offering Active Income & Active Value
Lake pointed out that, with $25 billion in assets, the JPMorgan Ultra-Short Income ETF (JPST) is the largest active ETF in the world. At the time of the interview, JPST was yielding 5%.
So, investors using the Bloomberg U.S. Aggregate Bond Index can get more yield “with less than 1% duration in JPST.”
In addition to JPST, investors “also like value,” according to Lake. For investors seeking “value companies that have strong balance sheets,” there’s the JPMorgan Active Value ETF (JAVA). Performance for the active value ETF managed by Claire Hart “versus the Russell 1000 Value Index last year was phenomenal.”
“The index has limitations,” Lake said. “It doesn’t understand that risk matters, that valuation matters, that quality matters. Portfolio management teams understand those things, and that goes into the portfolios. That’s why JAVA was so successful last year.”
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