ETF Of The Year/Best New ETF/Best New/International/Global Equity ETF
WINNER: JPMorgan BetaBuilders Japan ETF (BBJP)
As often happens, 2018’s “ETF of the Year” racked up two other important awards, taking the “Best New ETF” and “Best New Global/International ETF” prizes as well.
The winning JPMorgan BetaBuilders Japan ETF (BBJP), which now has $4 billion in assets, isn’t a particularly exciting product on its surface. The ETF provides low-cost exposure to Japan’s market via a cap-weighted index—but the “who” is pretty important in this case.
Financial Giant In New Territory
J.P. Morgan is one of the largest and best-known financial institutions in the world. When it got serious about launching its own ETFs in 2014, the company jumped feet first into the multifactor smart-beta trend that was sweeping the industry at the time, launching several ETFs for its “Diversified Return” series.
However, those funds didn’t gain the traction you’d expect from an issuer as well-known as J.P. Morgan—currently only one floats above the $1 billion mark: the JPMorgan Diversified Return International Equity ETF (JPIN).
From there, J.P. Morgan moved into bond and alternatives strategies, many of which relied on active management, as well as launching its own suite of index-based single-factor funds. The investment management firm has now pivoted to the idea of internally distributed low-cost beta. This is where it seems to have really found its footing in the ETF space.
BetaBuilder Building Blocks
Last year, J.P. Morgan launched BBJP in June, alongside another country fund, the now $3 billion JPMorgan BetaBuilders Europe ETF (BBEU) and the $136 million JPMorgan BetaBuilders MSCI U.S. REIT ETF (BBRE). The two country ETFs quickly began to gather assets, BBJP in particular.
Within roughly one month, BBJP had accumulated more than $1 billion, making its ascent to the billion-dollar club the second-fastest ever among U.S.-listed ETFs. As of mid-February 2019, the fund had grown to nearly $4 billion in assets after less than a year of trading.
When it made its debut, BBJP was notable because it was launched by financial giant J.P. Morgan, and came with a 0.19% expense ratio. That made it less than half the 0.47% charged by the $16 billion iShares MSCI Japan ETF (EWJ).
BlackRock’s iShares arm has maintained hegemony over the country ETF space for more than 20 years, with few serious challengers. Now J.P. Morgan—as shown by BBJP—has become the most direct threat to BlackRock’s country ETF lineup.
Moreover, J.P. Morgan has clearly created its country and regional ETFs for its own use in strategies for the firm’s institutional and high net worth clients, and BBJP is just the most successful of those funds.
Since launching BBJP and its cohorts, J.P. Morgan has expanded the family to include the $1.2 billion JPMorgan BetaBuilders Developed Asia ex-Japan ETF (BBAX) and the $2.3 billion JPMorgan BetaBuilders Canada ETF (BBCA).
Three of the issuer’s top five ETFs are also members of its small but growing BetaBuilders family. J.P. Morgan is far and away the largest shareholder in each of the four geographically focused BetaBuilders, often owning 50% or more of the funds’ respective assets for its clients.
Currently, the firm or its clients are behind roughly three-quarters of the assets invested in BBJP, which is actually a smaller fraction than in 2018, when J.P. Morgan assets constituted up to 96% of the fund’s bulk. BBJP is perhaps the latest and greatest example of a trend Bloomberg’s Eric Balchunas has described as “BYOA” (bring your own assets).
Bring Your Own Assets
While Franklin Templeton has offered a similar low-cost challenge with its own extensive lineup of even cheaper country ETFs, the scope of J.P. Morgan’s financial operations means the firm has even greater synergies to leverage.
And a lot of those assets seem to have come from EWJ, which hemorrhaged more than $2 billion in outflows in the second half of 2018. Clearly, J.P. Morgan has shifted at least some of its holdings from the iShares fund into its own product, but it’s possible that other EWJ investors decided to act on BBJP’s lower price and the liquidity that J.P. Morgan could guarantee in its product.
Either way, BBJP has seen sizable inflows almost every month since its launch and no outflows.
Aside from EWJ, BBJP’s other big competitor is the Franklin FTSE Japan ETF (FLJP), which comes with an expense ratio of 0.09%, less than half the price of BBJP and less than one-fifth the price of EWJ. However, as well-known as Franklin Templeton is, it doesn’t have the same massive operations or ability to shift assets around as does J.P. Morgan. It currently has a respectable—but much smaller—$1.9 billion in assets under management.
There’s not much difference between the three funds beyond price. They even have almost all their top 10 holdings in common in similar proportions. EWJ’s index is from MSCI, while FLJP’s is from FTSE. BBJP tracks a benchmark from Morningstar. All three are cap-weighted.
But BBJP is gaining ground on EWJ pretty rapidly. After less than a year of trading, it’s currently one-fourth the size of EWJ. Flows were flat for the month of February, after seven-straight months of inflows.
It’s no surprise BBJP has claimed not only ETF of the Year, but also Best New ETF and Best New International/Global Equity ETF.