Future Proof 2025: Travis Spence of JPMAM

At Future Proof 2025, Dave Nadig, President and Director of Research at ETF.com, talked shop with Travis Spence, Global Head of ETFs at J.P. Morgan Asset Management. Their discussion touched on how the firm thinks about active management, continued demand for the ETF wrapper, and opportunities in fixed income.

Transcription

Opening: Impending Corrections

Spence: We think there's a great imbalance that's going to be corrected, and we're seeing a big amount of flows coming through.

So, we think that in a market which today, in fixed income ETFs, 85% is passively managed, in an asset class that generally is an actively managed prefence—more than 70% of all mutual funds are actively managed.

Why Active Makes Sense Right Now

Nadig: Hi there, Dave Nadig. I'm here with Travis Spence, Global Head of ETFs for J.P. Morgan Asset Management. We've had a lot of conversation here about income. I put up a slide showing the crazy success you guys have had with JEPI and JEPQ, your income products. Obviously, tons of flows there. But honestly, the irony is that isn't even where all the money's been going for you all, is it? You guys have had a lot of success elsewhere. Talk to me about both of those product lines.

Spence: Well, look, it's been more and more diversified, but I think this year, where you've had a market that's gone down and then back up again, this is where active management comes in. I think what we've seen in the active ETF space that itself has taken on record flows this year. We're probably running about $100 billion higher than last year, which was also a record in active ETFs.

But the number one category has been derivative income, and I think it's a matter of staying invested in the market and having some downside protection with active management underneath. All of that has been really attractive this year. So, I think that's why that's been the number one active ETF category. And of course, we've participated with JEPI and JEPQ, but as you said, about 50% of our flows are coming from the wider range of ETFs that we've been managing.

We've got 43 active ETFs now. So, if you take away the six that Hamilton runs in his outcome and derivative strategies, you've got 23 that are fixed income and now 14 active fixed income ETFs. That's where we're seeing a lot of the flow. Again, go back to what's happening in the industry.

75% of the flows this year, and actually over the last three years, have gone into what I would call traditional core building blocks: your blend equities, your intermediate bonds—those kinds of categories, the core building blocks in portfolios. That's where we're seeing a big shift in the ETF space – that's where the rest of those core building blocks that we run in active ETFs are really seeing the majority of flows this year.

Nadig: Is there something that’s unique about your approach to active management? I've known Hamilton for years. I always think of him as being very risk-focused; he's not going to go take some wild flyer bet. Does that apply throughout your product line?

Spence: Well, I think it applies throughout our company. J.P. Morgan Asset Management, we are a traditional active manager, and what we've done in the ETF space is no different. We're taking the same portfolio managers, the same research analysts, the same processes that have been working for decades, and we've brought those into the ETF wrapper. I call it “ we’re taking the best of our active strategies and bringing them into the ETF wrapper”.

And so, I think that commitment to delivering the best of our capabilities, doing that in a vehicle which for many investors is just an easier access point and a more efficient vehicle, that to me is a winning combination. But it really comes from a top-down view of we want to deliver J.P. Morgan Asset Management – what clients have always been investing with us for – in the ETF wrapper, and I think that's made us successful.

JPMAM Goes All-In on ETFs

Nadig: And you've done some pretty big conversions along the way. It sounds like you're two feet in the ETF market and not worried so much about doing share classes and those kinds of "something for everybody" approach. Are you really going to be an ETF-forward shop?

Spence: Yeah, I think we're really looking at what the investor preferences are. There are certain sectors that just have a preference for ETFs, and we've looked to convert in those sectors, not everywhere. Actually, most of our strategies have been organically grown, and we've had investors come in through that way.

We did two things, which is where I think is a big focus for this year anyway. Think about fixed income. You've got rates that are at a peak where its probably going to move one directional downward going forward. So, this is a great entry point for fixed income.

We're seeing more and more interest in our fixed income ETFs. Why? Because ETFs for many are going to be a more efficient way to access the fixed income markets. Three million bonds, they don't all trade, so you've got secondary market liquidity. You've got an easier way for even the portfolio managers to put money to work intraday, which means that they can capture some of these moves that happen intraday, and you have less transactions that happen in the portfolio.

All of that for fixed income, which can have spreads between 30, 40 basis points on the bid-offer side, those are all benefits in the ETF wrapper. So, we think that in a market which today, in fixed income ETFs, 85% is passively managed, in an asset class that generally is an active managed preference. More than 70% of all mutual funds are actively managed. So, we think there's a great imbalance that's going to be corrected, and we're seeing a big amount of flows coming through.

We did two things this year recently. We had a $2 billion funding into a new JPHY – it’s our high-yield ETF. That was done by a large institutional investor, I think recognizing the benefits of investing in that asset class in an ETF. We also converted, which was the largest conversion of an active ETF, our mortgage mutual fund, and that converted into an ETF[ JMTG]. That was $5.8 billion.

I think both of those become, in this kind of a market, really important building blocks for fixed income investors. You take your core bond portfolio, and you probably want to have a little bit more spread opportunity in mortgages with a lower duration, but then you also want to add things like spread sectors like high yield. So, those are just another couple of tools now in the stable that have scale already that advisors can really take advantage of.

Nadig: Yeah, after some sleepy years for fixed income, it seems like where all the action's going to be. Travis, thanks so much for joining us.

Spence: Thanks, Dave.

Nadig: Cheers.