Speaker 1: Welcome to Inside Active, a podcast about active managers that
Speaker 1: goes beyond sound bites and headlines and looks deeper into
Speaker 1: their processes, challenges and philosophies and security selection. I'm David Cohne,
Speaker 1: I lead mutual fund and active Research at Bloomberg Intelligence.
Speaker 1: Today my coast is Eric Baltoonis, Senior ETF analyst at
Speaker 1: Bloomberg Intelligence. Eric, thank you for being my coast today.
Speaker 2: Great to be here, Dave.
Speaker 1: So this is our first episode recorded on location. We're
Speaker 1: here down in sunny Orlando with our gracious hosts JP Morgan.
Speaker 1: And since you do cover JP Morgan, I thought i'd
Speaker 1: let you kick this off.
Speaker 3: Yeah.
Speaker 4: Look, this is one of the fastest growing companies in
Speaker 4: a way. You know, they're very big. Everybody knows them.
Speaker 4: But they were somewhat late to the ETF party, so
Speaker 4: they were really came into the market maybe around ten
Speaker 4: years ago. So they had to make up for lost time,
Speaker 4: and they did. What they did is they found a
Speaker 4: niche in Active. At the time, Active wasn't really that hot,
Speaker 4: it wasn't really that popular, and I think I give
Speaker 4: ARC some credit for getting the hot sauce form of
Speaker 4: Active going. And then JP Morgan really got the sort
Speaker 4: of more traditional active going and they're bond ETF JPST
Speaker 4: and their stock ETFJEP, which are both active, are the
Speaker 4: two biggest active bond in stock ETFs in the world,
Speaker 4: and so they're also the fastest growing except JEFP has
Speaker 4: a little brother named jef Q, which beat all the records.
Speaker 4: But anyway, yeah, if you look up jp Morgan is
Speaker 4: going to be among the top of the list, whether
Speaker 4: you looking at assets or flows. And ETFs are where.
Speaker 2: All the fisher biting.
Speaker 4: So if you have an active management strategy in the
Speaker 4: ETF vehicle and you're at that level, you're really in
Speaker 4: the prime spot for the future in my opinion. And
Speaker 4: so it's good to talk to the pms of the
Speaker 4: really the two biggest, I think most relevant active funds
Speaker 4: in the world right now.
Speaker 1: Great, So in that regard, i'd like to welcome Hamilton Ryner,
Speaker 1: Managing Director, head of US Equity Derivatives and a portfolio
Speaker 1: manager for a number of funds, including the JP Morgan
Speaker 1: Equity Premium Income ETF or what we like to call JEPPI,
Speaker 1: and James McNerney, managing director and a portfolio manager for
Speaker 1: income funds including the j P Morgan Ultra Short Income
Speaker 1: ETF or JPST. Thank you both for joining us.
Speaker 3: Today, Thanks for having us, thanks for coming down.
Speaker 1: So I thought we'd start off with a big picture
Speaker 1: question I'd like each to you to answer before we
Speaker 1: kind of dig into the funds themselves. So you both
Speaker 1: manage income oriented strategies in a way, very different asset classes. Obviously,
Speaker 1: how would you define income with discipline today? We can
Speaker 1: start with you Hamilton.
Speaker 3: Sure.
Speaker 5: So when you think about income, incomes one of those
Speaker 5: things that is evergreen. I mean investors like income. You know,
Speaker 5: in a flatish market, income helps your returns, even in
Speaker 5: a down market, just getting that monthly payment helps shop
Speaker 5: in some of the losses of it overall portfolio. So
Speaker 5: income today right now I think is everrigating portfolios. It
Speaker 5: was a challenge to find income for a while when
Speaker 5: rates were near zero, and so finding a way to
Speaker 5: deliver income in a consistent manner in an evergreen basis,
Speaker 5: I think is something that really helps investors in building
Speaker 5: better portfolios.
Speaker 2: Great, how about you, James.
Speaker 3: Yeah, I think when we think of discipline, I mean
Speaker 3: the reason why JPSD resides in the global liquidity business
Speaker 3: at dablemore where we manage at truty dollars a money
Speaker 3: market Forlouba JBSC is a bond fund, a very low
Speaker 3: duration bond fund, but it resides in that business because
Speaker 3: we want to deliver a high quality, low lall solution
Speaker 3: that's the next set out of cash. And so everything
Speaker 3: we do is through a lens of RISKMA the ball,
Speaker 3: high deplety and capital preservation. And so we think about
Speaker 3: delivering current income part into the earth, we want to
Speaker 3: do it through that lens of a very rigorous wristman
Speaker 3: and menu rebust process that's going to deliver you know,
Speaker 3: I pick up relatives taking that step out, but not
Speaker 3: taking on too much risk to do so.
Speaker 5: In fact, just add one thing. When use the word discipline,
Speaker 5: I actually think predictable is probably you know, a better
Speaker 5: word than discipline, because when you're predictable, you have an
Speaker 5: understanding as to what to expect, when to expect it
Speaker 5: and build and put it into your into your portfolio.
Speaker 5: So happy something that's not like consistent, but predictable means
Speaker 5: that when people want to build models or build client portfolios,
Speaker 5: having that ability to know what to expect is truly
Speaker 5: an important part to portfolio construction.
Speaker 4: And you know, this is a great point. I used
Speaker 4: to say this with Arc all the time. People were like,
Speaker 4: why won't you go to cash? We know when the
Speaker 4: stock market was going on in twenty twenty two, why
Speaker 4: won't she do? She just keeps doubling down on these
Speaker 4: like crazy gross stocks, and I'm like, that's why she
Speaker 4: maintains volume and assets. It's because in ETFs, the person
Speaker 4: putting the portfolio together is the active manager, really, and
Speaker 4: you want each piece to do what it's supposed to do.
Speaker 4: So you're not giving your whole money over to somebody
Speaker 4: to just like pick everything. You want them to stay
Speaker 4: in their lane and be active. Which brings me to
Speaker 4: a question for you, Hamilton, which is I've always thought
Speaker 4: JEFPI is a really interesting fun I always say it's
Speaker 4: legwork active, so you're not just picking stocks. You're doing
Speaker 4: this option's overlay, which is again a pain in the butt, right,
Speaker 4: So you get a convenience factor, But why does it
Speaker 4: need to be active? Why couldn't you put this into
Speaker 4: an index and just not.
Speaker 5: Worry about the stock picking part. Sure, so the space
Speaker 5: has grown in popularity. There's a lot of participants and
Speaker 5: many people call themselves active, and it's when they talk
Speaker 5: about the options they're active. I think what differentiates us
Speaker 5: is it's not just about us being active from an
Speaker 5: options perspective, and as you said, it has a fair
Speaker 5: amount of brain damage associated. That will come back to
Speaker 5: that in a second, but also the stock portfolio. We're
Speaker 5: pretty blessed being here at JP Morgan. I mean, our
Speaker 5: fundamental analyst and the core equity platform. You know, it's
Speaker 5: about twenty folks with one hundred and ninety million dollars
Speaker 5: research budget, five thousand meanings per year. It's a competitivedvantage
Speaker 5: for us. It's a weapon.
Speaker 2: So why not utilize that in building a portfolio?
Speaker 5: And so when we first thought about whiteboarding what would
Speaker 5: we like Jeffy to look like, it wasn't just about
Speaker 5: the income. It was giving you the income some of
Speaker 5: the upside of the market and finding a more defensive,
Speaker 5: higher quality portfolio that would weather market selloffs. So if
Speaker 5: you just bought the index, the only thing protecting you
Speaker 5: to the downside is whatever modest option premium brought in.
Speaker 5: So having that more active defense of higher quality portfolio
Speaker 5: acts as a modest buffer to the downside, which is
Speaker 5: significantly better than just having that option's premium. And as
Speaker 5: you said, there's a lot of brain damage associate with options.
Speaker 5: Stocks don't die. Stocks either get taken over, they go bankrupt, or.
Speaker 2: They last forever. Options die.
Speaker 5: And in order to have a strategy that uses options,
Speaker 5: you need to have a best in class middle office,
Speaker 5: back office, clearance, custody, colliudal management, cash management.
Speaker 2: It's hard.
Speaker 5: It's why so many people outsource the investing part of
Speaker 5: an option or into strategy in the ETF space.
Speaker 1: Eric, So, I'm glad you brought that up. We're talking
Speaker 1: about options, and then you know stock picking. How do
Speaker 1: you balance the goal of delivering regular income with long
Speaker 1: term total return potential?
Speaker 5: Sure, so you know, our north star has always been
Speaker 5: about delivering predictable income, but doing it in a way
Speaker 5: that balance is upside and income. There are some strategies
Speaker 5: that will forego one hundred percent of the upside to
Speaker 5: have a higher level of income. Our goal is to
Speaker 5: have returns be a combination of some dividends, some options premium,
Speaker 5: and then some of the upside. And so it's about
Speaker 5: creating total return with three buckets of return. Now, there
Speaker 5: is never a free lunch and you're going to get
Speaker 5: some of the upside of the market through a cycle
Speaker 5: for that options premium that burdenhand today, but that balance
Speaker 5: is not actually something that is by accident, is very intentional.
Speaker 5: It's very intentional to have that type of balance. In addition,
Speaker 5: we're not looking for dividen paying stocks, David, We're actually
Speaker 5: looking for stocks that are just high quality names. Because
Speaker 5: when the market sells off, high quality named with great
Speaker 5: cash flows and great franchises and great businesses tend to
Speaker 5: go down less and you tend to see that like
Speaker 5: we saw in twenty twenty two, fourth quarter of twenty
Speaker 5: twenty five, first colarre of twenty twenty five, for that matter.
Speaker 5: Finding a way to help buffer the downside besides options
Speaker 5: premium has always been on north Star, so JETPY yields
Speaker 5: eight percent, right and jep Q with ten percent all right,
Speaker 5: So I have been one of my ETFs to we
Speaker 5: do twenty six ETFs to watch in twenty twenty six.
Speaker 5: I think you have a jpmmorder one on there.
Speaker 4: I think it's Jphy, but one of mine is c Aie.
Speaker 4: You may have heard of it. You probably heard of it,
Speaker 4: but for people listening who probably haven't it's the calum
Speaker 4: most auto callable ETF. You practically need a PhD to
Speaker 4: understand how these things work. But at the end of
Speaker 4: the day, it's a fourteen percent yield and that is
Speaker 4: pretty appealing. You just said people love income, so we
Speaker 4: call this derivative income, and derivative income is a real
Speaker 4: hot area of ETFs. It seems like auto callables might
Speaker 4: be a threat to the option income market that you
Speaker 4: are like the king of. Do you see it as
Speaker 4: a threat or is it.
Speaker 5: Going to be more more niche So I'm not sure
Speaker 5: I'm the king of anything, but what I would say
Speaker 5: is when I think about the autoclable market, auto calbs,
Speaker 5: auto callables have been in the wealth management channel for
Speaker 5: years and years, and they've traditionally been done on an index,
Speaker 5: a group of indices, a single name. And I agree
Speaker 5: with you as far as how you said. It not
Speaker 5: me that you need a PhD to understand it. Understanding
Speaker 5: what to expect, why to expect it.
Speaker 2: Is really really important.
Speaker 5: You just can't look at the headline yield, Eric, I
Speaker 5: think you have to look at you know, are they
Speaker 5: using leverage?
Speaker 2: What is the index? You know? Where do is?
Speaker 5: Where is the exploding downside kick in you know, the transparency,
Speaker 5: the liquidity, the issue or the counterpart, the operational complexity.
Speaker 5: I think there's just a lot there to unpack. And
Speaker 5: for those people that do have the PhD and are
Speaker 5: willing to dig deep, I think that it is an intellectual,
Speaker 5: intellectually honest way of investing. But I'm not sure if
Speaker 5: everyone has done the work. And so it's about education.
Speaker 5: I think one of the things that we've done at
Speaker 5: JP Morgan, I think better than most is we help
Speaker 5: people understand what to expect and in what market, what
Speaker 5: would be a good market, what would be a challenging market,
Speaker 5: will be a baseline market. And I think that that's
Speaker 5: going to be important to the auto callable space moving forward.
Speaker 5: And I know you watch filings as the rest of
Speaker 5: your team. It seems like everybody in their mother is
Speaker 5: launching an auto callable strategy. So I think there's going
Speaker 5: to be a lot of education necessary. I think we
Speaker 5: did a lot of the heavy lifting and the driven
Speaker 5: income space. A lot of people are in our coattails
Speaker 5: on It's me interesting to see how much education is
Speaker 5: needed and actually happens in the auto callable space.
Speaker 4: Yeah, just to comment for it as a to you, Dave,
Speaker 4: is that there are forty autocollable ETIFT filings and there's
Speaker 4: like twenty on the market, so it's no secret. Because
Speaker 4: of the Calamost success, the industry is seen like a
Speaker 4: possible hit category, so we're going to see a lot.
Speaker 4: I think CIA is a responsible one. It's very diversified
Speaker 4: with like fifty different swaps in there. However, I do
Speaker 4: agree it is complicated. You have to do your due
Speaker 4: diligence and now they're going to come with like single
Speaker 4: stock autofolbles and as usual etif industry is going to
Speaker 4: go a little wild. See, you got to be careful here.
Speaker 1: So if we get back into the actual income, I
Speaker 1: did want to ask, when you're managing the portfolio, when
Speaker 1: we're in environments with volatility spikes, how do you adjust
Speaker 1: strike selection or timing for covered calls, just to help
Speaker 1: kind of manage that downside risk.
Speaker 5: Sure, So you know, my background is over thirty five
Speaker 5: years investing in equities and equy options, and one of
Speaker 5: the things that I've learned is that for portfolios stocks.
Speaker 2: Volatility is the enemy bond.
Speaker 5: To make cases, volatility as the enemy because credits bread
Speaker 5: is widen But the fact is is every strategy that
Speaker 5: I manage has volatility as a tailwhend it's a benefit.
Speaker 5: So when volatility goes up, we're going to do two
Speaker 5: things for our investors. One, we're going to generate more income.
Speaker 5: Most people like that. The second thing is we're gonna
Speaker 5: sell an option that's farther away from where we are,
Speaker 5: giving them more potential upside. So having that balance of
Speaker 5: upside and income, as we highlighted before, is very important
Speaker 5: to us. So when you put a strategy like JETPI
Speaker 5: or JEPQ in your portfolio, it acts as a implicit
Speaker 5: diversifier because volatility is its friend, or other parts of
Speaker 5: your portfolio used voltility as its natural born enemy.
Speaker 4: I have a question on the naming of it. You know,
Speaker 4: I'm really fascinated by names. Over the years, We've seen
Speaker 4: some ETFs try fail, they resurrect it, we call it
Speaker 4: the Lazarus list. They try it again, it fails, and
Speaker 4: then someone just like renames it, and all of a
Speaker 4: sudden it's a hit. I think think slice spread work
Speaker 4: like this one. Like they couldn't sell bread until like
Speaker 4: wonderbread came along. You if they google that. But there's
Speaker 4: a whole story about how just labeling things sometimes is crucial.
Speaker 4: This used to be covered calls. There's a lot of
Speaker 4: cover quality tfs. They existed for a long time, and
Speaker 4: then you guys come in. You call it equity premium income,
Speaker 4: which I always thought was like the winning the Pooh
Speaker 4: and the Tuxedo. You know, it's like an it's a
Speaker 4: more of a fine name for covered call. How crucial
Speaker 4: is that to the strategy? I mean he thought about
Speaker 4: that at all, because it seemed to the Other thing
Speaker 4: is your timing was good, because twenty twenty two is
Speaker 4: when things got volatile and rate went up and the
Speaker 4: growth stocks really got hit. But what do you credit
Speaker 4: to the reason you were able to do it and
Speaker 4: not the cover call people before you?
Speaker 3: Sure?
Speaker 5: So, you know, as far as I'd love to tell
Speaker 5: you that Jeffy was a you know, instantaneous success, we
Speaker 5: actually launched it first in twenty eighteen. Is a mutual
Speaker 5: fun and we had modest success. And then the ETF
Speaker 5: team and I collaborating this said would you ever be
Speaker 5: interested in running an active ETF on the back of
Speaker 5: James's success with JPST. I said, absolutely, if I can run,
Speaker 5: if I could ride James, this cotails done, and so
Speaker 5: we in twenty twenty we launched JETPY the ETF And
Speaker 5: what I think made us different was not that we
Speaker 5: didn't call it a cover call strategy, but rather we
Speaker 5: help people and what we highlighted earlier how to use
Speaker 5: it and what to expect. You know, in a traditional
Speaker 5: cover call strategy, people start talking about how the sausage
Speaker 5: is made. I buy this and I sell this, and
Speaker 5: they get into the weeds. Nobody really always wants to
Speaker 5: know how the sausage is made initially. What they really
Speaker 5: want to understand is how do I use it and
Speaker 5: how can it help me? So we always led with
Speaker 5: a high quality.
Speaker 2: Group of stocks.
Speaker 5: It's gonna throw off seven to nine percent distributle income
Speaker 5: that incomes be paid out monthly and over timing you
Speaker 5: get some of the upside of the market. And we
Speaker 5: are very thoughtful in the activeness of our long portfolio
Speaker 5: because if the market would ever sell off because we
Speaker 5: wanted in twenty twenty, don't forget, we would expect these
Speaker 5: high quality names to hang in.
Speaker 2: Better and once you know it.
Speaker 5: In twenty twenty two, the market's hold off and the
Speaker 5: strategy was only down a fraction of the overall market.
Speaker 5: But that was you know, it was not something that
Speaker 5: we hoped would happen or expected to happen. It was
Speaker 5: just building it in case that were to happen. So
Speaker 5: I'm not sure if you call it call overriding or
Speaker 5: driven income or covered calls. It's what really brings this
Speaker 5: to I think the success was helping people understand how
Speaker 5: to use it. And the other thing I'd say, Eric,
Speaker 5: is you know when you think about covered calls, many
Speaker 5: people say I'm going to buy a portfolio of twenty names,
Speaker 5: I'm gonna sell options on all twenty names, and then
Speaker 5: two weeks later, some chunk of those stocks are up
Speaker 5: a lot, and you're like, man, I hope that stock
Speaker 5: doesn't go up anymore. You start rooting against your favorite
Speaker 5: stocks going up. So we never had that approach. So
Speaker 5: we always had options at the index level, so we
Speaker 5: would actually get the income by removing beta, but never
Speaker 5: having our favorite stocks taken away from us and being
Speaker 5: left with the losers and having our winners taken away.
Speaker 5: So I think the approach that we first took was
Speaker 5: what is the client experience we want them to have?
Speaker 5: How do we want to build this strategy and actually
Speaker 5: try to figure out how many different environments can the
Speaker 5: strategy work pretty well on.
Speaker 1: So in covering active, one of the things I've been
Speaker 1: tracking is sector concentration, especially with tech. And so if
Speaker 1: we move over to jet Q, how do you manage
Speaker 1: sector concentration risk? You know within that covered call framework,
Speaker 1: you know, especially with a tech heavy market like the Nasdaq.
Speaker 5: So whereas the S and P five hundred is concentrated,
Speaker 5: the NASAK one hundred is really concentrated. So to try
Speaker 5: to be that different from the NASAQ one hundred is
Speaker 5: really really tough to do. So with jet Q, our
Speaker 5: long portfolio is going to be similar to the NASAQ
Speaker 5: one hundred. It's going to have let's call it two
Speaker 5: to three hundred base points of analyzed tracking R modest
Speaker 5: under and overweights, a little bit out of benchmark. But
Speaker 5: it's going to be stocks that could be in the Nasdaq.
Speaker 5: For example, as you know, Walmarts added to the NASTAQ
Speaker 5: one hundred, names that could be the NASA one hundred.
Speaker 5: We're never gonna go down in cap or things that
Speaker 5: are just micro cap. We're gonna own up that is
Speaker 5: either in the nasadack or could be in the Nasdaq.
Speaker 5: But once again, the activeness of that long portfolio helps
Speaker 5: modest it helps create most alpha. We expect somewhere between
Speaker 5: you know, seventy five to hundred bits of alpha par animals. Again,
Speaker 5: it's unique, it's differentiated. We're not sure anyone else is
Speaker 5: doing a Nastak one hundred portfolio that's active. The options
Speaker 5: that we do are always going to be out of
Speaker 5: the money, and the concentration we we you know, we
Speaker 5: try to you know, it's there's no getting away from
Speaker 5: the concentration, but we try to manage the concentration by
Speaker 5: having most over and underweights based on the stocks that
Speaker 5: we like.
Speaker 2: A little bit more than others.
Speaker 5: So we'll be modestly overweight, you know, let's call it
Speaker 5: stocks that we think have a better cash flow and
Speaker 5: better return.
Speaker 2: Profile, lower evaluation relative to others.
Speaker 5: You know, many people say I have to outrun the
Speaker 5: bear or as opposed to outrunning you, we just think
Speaker 5: we have to actually generate modest out above the benchmark,
Speaker 5: and the options that we're doing are on the Nastok
Speaker 5: one hundred, and as such, we want to.
Speaker 2: Make sure we're not that different.
Speaker 5: Because you are going to sell options that are going
Speaker 5: to have exposure to a highly concentrated portfolio as well.
Speaker 1: David, And since I also cover mutual funds and you know,
Speaker 1: I'm always looking for what are the benefits of mutual
Speaker 1: funds over ETF's capacity is kind of the one thing
Speaker 1: where ETFs can't close. And so I just want to ask,
Speaker 1: you know, can the strategy get too big? You know,
Speaker 1: are you ever concerned about capacity?
Speaker 2: I worry about everything. I'm paranoid about everything.
Speaker 5: But I would say the bar for us at JP
Speaker 5: Morgan to launch a strategy is we have to take
Speaker 5: the approach that what if we're lucky enough to have success.
Speaker 5: And when we go to these conferences, and there's conferences
Speaker 5: all over the country, you know, with lots of ETF providers,
Speaker 5: many of them have the approach of you know, that
Speaker 5: would be a Champagne problem, and our approach has always been,
Speaker 5: O would be a champagne headache. As soon as you
Speaker 5: have to change your investment process to actually solved for
Speaker 5: our capacity problem, you now have changed that experience of
Speaker 5: your client, that predictability of your client. You can't have
Speaker 5: a small cap strategy, Sea, I'm gonna start adding MidCap.
Speaker 5: You can't change what clients have bought and expect from you.
Speaker 5: So when you think about the S and P five hundred,
Speaker 5: it's pretty crazy. Three point two trillion trades per day
Speaker 5: of notional and let's just say you take half of
Speaker 5: that out in seried options, it's still one point six
Speaker 5: trillion the options that you know, we started one of
Speaker 5: the very first hedge equity strategies in twenty thirteen. Back
Speaker 5: then the s F YOU one hundred only traded five
Speaker 5: hundred billion, which is pretty big at that point too.
Speaker 5: So those the options in the index have drawn even
Speaker 5: faster than the drind of income, the hedge equity the
Speaker 5: buffer strategies by significant amount. And when you think about
Speaker 5: the Nasdaq, the Nasdaq trades over five hundred billion per day.
Speaker 5: So doing options over multiple weeks, because we ladder and
Speaker 5: stagger our options, not having all of our eggs in
Speaker 5: one basket, we think help soften the two big answer.
Speaker 5: But if you ask me, would I like to launch
Speaker 5: a highly concentrated small cap drive income strategy. Absolutely, just
Speaker 5: not an an ETF.
Speaker 4: This is a good segue, is our last question for you,
Speaker 4: and then we're going to move over to bonds. So
Speaker 4: equity primum income, as I said, is a great name.
Speaker 4: And now you've got a franchise. You know, once you
Speaker 4: got a hit product, we've done study after study. If
Speaker 4: you have a hit, you better put out sequels. It's
Speaker 4: like the movie business. You know how many Iron Man
Speaker 4: movies are like four? You got JETPI, then you rolled
Speaker 4: out Jet Q. What's next, Like how far can you
Speaker 4: take it? I know capacity is one concern, what about
Speaker 4: some more let's call it like volatile areas. And I
Speaker 4: know you guys don't do anything in crypto, although the
Speaker 4: world changes pretty fast these days. But I think like
Speaker 4: a diversified crypto equity premium income would make sense because
Speaker 4: it would be like diet crypto. You know, you'd have
Speaker 4: like the income and you'd select the more defensive crypto.
Speaker 4: And it seems like you could almost sanitize that experience
Speaker 4: for people with this strategy, and not just crypto, but
Speaker 4: other asset classes. It maybe international.
Speaker 2: So we've never been a meet too firm.
Speaker 3: You know.
Speaker 5: We launched Jeppie because the income in the marketplace was
Speaker 5: near zero.
Speaker 2: We felt was that we could deliver.
Speaker 5: High quality income distributed monthly, and that's where Jeppy was born.
Speaker 5: And when you think about income oriented strategies. There's a gap,
Speaker 5: a massive whole no tech. There's no tech that actually
Speaker 5: has yields. So we launched JETQ to fill that hole
Speaker 5: for those dividen oriented investors or those folks that wanted
Speaker 5: tech exposure but could there was no income in tech,
Speaker 5: and so that's kind of where JEPY came from and
Speaker 5: where jet Q came from. Now offshore in our use
Speaker 5: this world, we actually do.
Speaker 2: Have a global JETPY.
Speaker 5: We also have filed for European JETPY and we expect
Speaker 5: that to come to market, you know, early twenty twenty six.
Speaker 5: So we're always looking for those things where there's client
Speaker 5: interest and demand. What I would also say is when
Speaker 5: you talk about crypto and gold, I mean Warren Buffett
Speaker 5: has never been a gold fan because he's like, I
Speaker 5: can't own something that doesn't have yield. If you created
Speaker 5: a gold overright strategy, you may even get.
Speaker 2: Warren Buffett to buy.
Speaker 4: So where's the viiling.
Speaker 5: Well, we'll talk to our brethren and fixed income currency
Speaker 5: commodities on that one as well. The other thing I'd
Speaker 5: say is there are many people like you folks that
Speaker 5: are you know, you like what we do in JETP.
Speaker 5: You like the return profile JETPY, but you don't need
Speaker 5: or want the income yet. And so about in August,
Speaker 5: we launched a strategy called joyt I will joy to
Speaker 5: your portfolio. The idea here is it's called the JP
Speaker 5: Morgan Equian option Toll Attorney TF. So when you have
Speaker 5: additional investor that actually takes a distribution only to reinvest it,
Speaker 5: you know that actually means I'm going to give you
Speaker 5: money only to give it back to me, So maybe
Speaker 5: I shouldn't even give it to you.
Speaker 2: So this is strategy.
Speaker 5: It keeps its options premium within the ETF so there
Speaker 5: is no movement between that. So it doesn't have a
Speaker 5: taxable event from that perspective, or we don't anticipate to
Speaker 5: have a taxable event, and enables you to take out
Speaker 5: money when you want to, but just get the same
Speaker 5: return profile and the lower vall very good, sharp ratio
Speaker 5: type of strategy and I encourage people to kick the
Speaker 5: tires on it.
Speaker 4: Great, So thank you, Hamilton.
Speaker 3: Now time for bonds, James, exciting, right.
Speaker 2: We should have started with bonds. I'm just kidding.
Speaker 4: No, sorry, I it's just the inside joke between me
Speaker 4: and Katie when she's like, oh, we got his coat
Speaker 4: of fixed in color.
Speaker 2: I'm like, oh, I'm just kidding.
Speaker 4: I love bonds.
Speaker 3: We'll make it as painless as possible for you.
Speaker 1: So I think to start, give us just kind of
Speaker 1: an overview what the investment process is for JPSD.
Speaker 3: Yeah. Sure, And to be you know clear, JPST is
Speaker 3: run off of an ultrashort platform that's one hundred and
Speaker 3: eighty billion dollars run by Deve Martuccio is here in
Speaker 3: the room with us. JPSD is just the flagship ETF
Speaker 3: at thirty five and a half billion. Now, so this
Speaker 3: space we've been managing money going back to two thousand
Speaker 3: and four. We had an institutional process in place that
Speaker 3: I'll take you through in a second, and then we
Speaker 3: launched JPSD off of that platform in the ETF Rapper
Speaker 3: to reach the advisor community and we've had great uptake there.
Speaker 3: But from you know, our institutional experience, the way that
Speaker 3: we manage money is really no different than anybody else.
Speaker 3: I mean what I would say is, you know, marriage
Speaker 3: of the top down macro outlook bottoms up security selection. Yeah,
Speaker 3: specifically about security selection. You know, what we do is
Speaker 3: on a monthly basis, have a macro meeting where we
Speaker 3: have our entire team, the whole portfolio management team, ten
Speaker 3: portfolio managers globally or in this meeting, our CIO John Donahue.
Speaker 3: You know, we'll have our our credit analysts, even some
Speaker 3: of our client facing folks, risk management teams all present.
Speaker 3: There will debate markets obviously in the outlook, and then
Speaker 3: we'll come away from that meeting with an eye towards
Speaker 3: adding and reducing interest rate duration, credit spread risk, what
Speaker 3: sectors do we want to be doing that in and
Speaker 3: then JPSD. Now, the ultrashort space is a little funny.
Speaker 3: There's only one qualification that you need to meet to
Speaker 3: be considered an ultrashore fund, and it's a weighted average
Speaker 3: interestraight duration in one year or less. So you could
Speaker 3: buy credit as long as you'd like, as long as
Speaker 3: you head you back, or as long as the interestraright
Speaker 3: duration is shorter. We've limited ourselves to five year maturity,
Speaker 3: so we're trying to pick the points along the curve
Speaker 3: that we want to be then buying those securities. When
Speaker 3: we come out of that meeting, though, with that sort
Speaker 3: of guidepost, we go back to the desk and then
Speaker 3: we start doing our relative value work on the underlying securities.
Speaker 3: The way that we work though, and I mentioned risk
Speaker 3: management at the beginning of US and being a part
Speaker 3: of global liquidity, one of the best practices that when
Speaker 3: Dave was building out the process we wanted to employ
Speaker 3: in this space was to leverage the a proof of
Speaker 3: purchase list that our money market funds use, So we
Speaker 3: just can't buy any credit into the portfolio just because
Speaker 3: we like the name and it looks cheap to us
Speaker 3: and needs to be fundamentally scrubbed by our twenty plus
Speaker 3: credit analyst team. When they're fantastic, they understand what we're
Speaker 3: trying to do here with a lower vowl approach, they'll
Speaker 3: deem it appropriate or not to go on to that list,
Speaker 3: and if it does, they'll sign it an interrontal rating.
Speaker 3: Then that will drive what our maximum concentration is and
Speaker 3: where do we want to go on the curve in
Speaker 3: that name. Once we take that list and we take
Speaker 3: that and we marry that up with what our macro
Speaker 3: outlook is, then we'll go on and we'll do relative
Speaker 3: value work using those individual credits to try and source
Speaker 3: value in the portfolio. And we're very active in doing
Speaker 3: that right, So you'll constantly see us swapping out of
Speaker 3: a short bond and giving credit to buy a new
Speaker 3: issue in the two year, three year, five year part
Speaker 3: of the curve if we deem an appropriate for our outlook.
Speaker 3: But it's very actively managed.
Speaker 1: So ultra short strategies do walk a fine line between
Speaker 1: higher yield and preserving liquidity. How do you calibrate portfolio
Speaker 1: risk when spreads widened but liquidity titans?
Speaker 3: Yeah, and I guess this is what Eric meant by
Speaker 3: bonds are fun because you know, I don't want to
Speaker 3: geek out on bond terminology, but really the calibration, the
Speaker 3: metric that we use is spread duration, right, So a
Speaker 3: bond portfolios sensitivity to wining or tighting and crowd spreads.
Speaker 3: And I just mentioned that to be an ultra short
Speaker 3: fund you have to have weighted average duration in one
Speaker 3: year or less. Your spread duration can be as high
Speaker 3: as you'd like. Right. For us, we've managed in a
Speaker 3: range of a half a year to one and a
Speaker 3: half years. And that's not to say we can't go higher.
Speaker 3: But even at the time where we saw spreads the
Speaker 3: cheapest in the last twenty years, we still just took
Speaker 3: it up to about a year and a half. And
Speaker 3: that's just given you know, how we view the world
Speaker 3: and wanted to be that conservative next step out of cash,
Speaker 3: so that spread risk is going to be one of
Speaker 3: the levers that we pull. The other thing I mean
Speaker 3: I mentioned the approve a purchase list and the individual
Speaker 3: credit sizing. That's very important to us. We want to
Speaker 3: be very granular in the individual exposures that we had
Speaker 3: in individual credits, so you typically won't see us own
Speaker 3: much more than one and a half to two percent
Speaker 3: any given name in the portfolio. And we don't want
Speaker 3: to just bullet that at one point, meaning we don't
Speaker 3: want to just buy that entire concentration in one, two,
Speaker 3: three years with just one bond. Further out the care
Speaker 3: we want to try to ladder it so we have
Speaker 3: some sort of natural rolldown, natural liquidity, and that's you
Speaker 3: know I mentioned before. Our priorities are capital preservation, liquidity,
Speaker 3: and then return of or pickup in return over cash
Speaker 3: and higher yields in that order. And to achieve that,
Speaker 3: we want to make sure that we have a portfolio
Speaker 3: that's liquid not only in the marketplace, but also liquid
Speaker 3: through the natural occurring maturities and the portfolio of securities
Speaker 3: rolled down.
Speaker 4: Yeah, as you were talking, I got flashed back to
Speaker 4: twenty twenty in March where there was a couple of
Speaker 4: ultra short ETFs. I don't know if it was you,
Speaker 4: per se. I think it was a blackrock product, but
Speaker 4: they had some deep discounts temporarily. I mean the whole
Speaker 4: market did, honestly, even TLT had discounts. But this is
Speaker 4: something that happens seems like once every five years, where
Speaker 4: just like the sky falls and how important is that
Speaker 4: or how much is that on your mind when you're
Speaker 4: thinking about these bonds, because I have to think the
Speaker 4: temptation to just.
Speaker 6: Go a little further and get a little more juice
Speaker 6: is pretty strong, right, And within global liquidity, we have
Speaker 6: our own dedicated risk management team specific to the products
Speaker 6: that we manage that are going to keep us honest
Speaker 6: and keep us true to you know, the approach that
Speaker 6: we've agreed to to manage this product, which again is
Speaker 6: with an eye towards low volatility, and we want clients
Speaker 6: to be able to sleep well at night with this fun. Right,
Speaker 6: you shouldn't have to go and explain to your clients
Speaker 6: why your ultra short fund is trading at such a
Speaker 6: deep discount or at a loss, and so I think,
Speaker 6: you know, as far as how we approach things have
Speaker 6: kind of gotten into the granular sizing the high quality
Speaker 6: nature of the approved for purchase list. I always like
Speaker 6: to say, because of that list, we're already starting with.
Speaker 3: A much higher quality subset in my view, than the
Speaker 3: market portfolio that's out there that's available to us. But again,
Speaker 3: active management you get, you know, the process that we
Speaker 3: are kind of covered here and pulling the levers of
Speaker 3: liquidity that you know right now, I'll give you an example.
Speaker 3: We're looking at a market where spreads, as we all know,
Speaker 3: are approaching all time tights. If they're not there in
Speaker 3: certain parts of the curve, we don't know that the
Speaker 3: FED is cutting rates too more dramatic, too much more dramatically.
Speaker 3: We think still we get one or two more cuts
Speaker 3: this year. But that being said, that kind of gives
Speaker 3: us a little bit of pause for extending the portfolio
Speaker 3: too much, and so we start to pull back on
Speaker 3: that lever and maybe our spread risk has been anywhere
Speaker 3: has been really run in the lower half of that
Speaker 3: range that I mentioned before. If we were to see
Speaker 3: widening that we'd actively move out the curve. But to
Speaker 3: your point, we always keep those those instances in mind obviously,
Speaker 3: of you know, you never know when you're gonna get
Speaker 3: hit with an air pocket of vol and maybe liquidity
Speaker 3: drives up a bit or becomes more challenge. I think
Speaker 3: March of twenty twenty was certainly, you know, a multi
Speaker 3: standard deviation event that it was probably about as bad
Speaker 3: as it gets when it comes to liquidity. And obviously
Speaker 3: the FEDS put some facilities in place now that weren't
Speaker 3: in place before that will probably help to sort of
Speaker 3: cap the widening on credits spreads we would think going forward,
Speaker 3: and maybe reduce some of the tail risk. But yeah,
Speaker 3: certainly we want to keep an eye on that, and
Speaker 3: that's why I mentioned before, we want to build that
Speaker 3: into you know, build that ladder into the portfolio, have
Speaker 3: those naturally occurring maturities that then can provide liquidity if
Speaker 3: we're in a market where all of a sudden liquidity
Speaker 3: becomes challenged.
Speaker 1: So we're talking about liquidity, but what about just in
Speaker 1: general rising or uncertain rate environments. How did duration and
Speaker 1: floating rate exposure decisions kind of change inside your bucket?
Speaker 3: Yeah, and I think it's surprising that people when we
Speaker 3: go in to talk to them about the fund and
Speaker 3: show how active we are and managing the duration of
Speaker 3: the fund, when I've already stated the range is just
Speaker 3: zero to one year at the portfolio level, right, But
Speaker 3: that can drive a lot of alpha relative to competition
Speaker 3: or two indicase that are more static. So we're very
Speaker 3: active within that range. I'd give you an example, like
Speaker 3: in twenty twenty two, obviously the FED was, you know,
Speaker 3: hiking rates pretty dramatically. We brought the portfolio way down
Speaker 3: the curve. We were running about a quarter of a
Speaker 3: year duration. We were outright short two year treasuries in
Speaker 3: the future market, and we had about ninety percent of
Speaker 3: the portfolio almost maturing inside of one year. We looked
Speaker 3: a lot like a money market fund in that instance.
Speaker 3: It's not our goal to be in money fund, but
Speaker 3: we wanted to protect again principle in the portfolio. Our
Speaker 3: return was just over one percent for the year twenty
Speaker 3: twenty two, one point zero six percent to be to
Speaker 3: be exact, versus the egg being down thirteen percent. So
Speaker 3: not bad. I mean, obviously tough to keep up with cash,
Speaker 3: and in that instance, I don't think anything really outperformed cash,
Speaker 3: but you know, certainly we were able to protect the
Speaker 3: majority of the portfolio. Now today the opposite is true.
Speaker 3: You know, we are running much closer to our maximum
Speaker 3: duration about three quarters of a year right now. We
Speaker 3: have more of the portfoli out the curve right now,
Speaker 3: probably about fifty five to sixty percent maturing inside of
Speaker 3: a year, which is still a little bit elevated. But
Speaker 3: again in the market that we're in right now, we
Speaker 3: don't know that we necessarily get a massive benefit from
Speaker 3: you know, rates moving materially lower in the near term here,
Speaker 3: or spreads moving materially tighter, and so we're going to
Speaker 3: be a little bit more cautious with big picture. We
Speaker 3: have moved back out the curve very actively, and so
Speaker 3: that you know, we're going to pull that lever again,
Speaker 3: just like we mentioned the spread risk before. But obviously
Speaker 3: this is more focused on interest rates and at times
Speaker 3: in a twenty twenty two environment, for example, you know,
Speaker 3: I think we had upwards of thirty percent floating rate,
Speaker 3: you mentioned that. Right now it's more closer about ten percent,
Speaker 3: maybe a little bit more, and that's more of an
Speaker 3: income play right now. Right so if we can get
Speaker 3: our state at alpha goal for JPSD is plus forty
Speaker 3: to sixty basis points over cash or over a money
Speaker 3: market fund. We use a prime money market fund as
Speaker 3: the benchmark for that. When we look at floaters right now,
Speaker 3: there are certain issuers where we can get a carry
Speaker 3: of forty to sixty maybe even a little bit more
Speaker 3: over the sofa rate or the cash proxy. So you know,
Speaker 3: for us, that makes sense to kind of clip that
Speaker 3: coupon and it's a good income play. But obviously right
Speaker 3: now we're leaning more in the direction of having a
Speaker 3: little bit more duration on so the floating rate exposure
Speaker 3: is a little bit lower than it was in a
Speaker 3: period like twenty twenty two.
Speaker 4: So Dave does great job covering neutral fund flows. And
Speaker 4: one of the things that blows my mind is that
Speaker 4: money market mutual funds took in something like seven to
Speaker 4: eight hundred billion dollars last year. So everyone is flipping
Speaker 4: out that ETFs took in one point five trillion, and yeah,
Speaker 4: that is a lot, but money market funds did half
Speaker 4: of that. I mean, that's a lot of money. How
Speaker 4: much of that? Like does that are you?
Speaker 3: Like?
Speaker 4: Does that hurt to see all that money go? Because
Speaker 4: that's I feel like you could pick some of that off.
Speaker 4: And well, I think is that who you're selling to
Speaker 4: is to say, hey, look, I know you want to
Speaker 4: part cash. You don't need a dollar nav it's not
Speaker 4: that big of a deal. Come up, I'll give you
Speaker 4: a little more. Or are you selling to people who
Speaker 4: just are outside of the money market world completely?
Speaker 3: No. I think it's a mix of both. So I
Speaker 3: think the majority of the flow thirty five billions since
Speaker 3: twenty since we launched in twenty seventeen, has been folks
Speaker 3: moving out of cash that are looking to pick up
Speaker 3: a little bit more, you'll strategically, right, so maybe you
Speaker 3: know what we say are recommended investment horizon to be
Speaker 3: in this fund is a minimum of six months, right,
Speaker 3: so at least six months, maybe six to twelve months.
Speaker 3: You know, if you have a known cash need inside
Speaker 3: of that period and you have no stomach for vall,
Speaker 3: you should really be in a money market fund. So
Speaker 3: we're not going to you know, sell against against those clients,
Speaker 3: but if you have cash, you can segment and move
Speaker 3: out the curve one step. Certainly, there's this opportunity to
Speaker 3: pick up what can be meaningful, right relative it doesn't
Speaker 3: have to be in that forty to sixty range. This
Speaker 3: past year is closer to eighty basis points overcash, So
Speaker 3: you know, it depends on the market that we're in, certainly,
Speaker 3: but there's an opportunity there, and I think again that's
Speaker 3: where the majority of the flow has come from. Now,
Speaker 3: we've seen times where people will use JPSD as sort
Speaker 3: of importent a storm of volatility maybe coming down the
Speaker 3: curve in twenty twenty two to sort of shelter away
Speaker 3: from duration. That's not a trade that we see right now.
Speaker 3: But you know, I think you mentioned that money market flow.
Speaker 3: We were talking about this in a breakout earlier. You know,
Speaker 3: if you normalize money market assets relative to the market
Speaker 3: cap of the SAP five hundred right now, we're actually
Speaker 3: a little under where we've been historically. So we're not
Speaker 3: surprised to see structurally cash flowing into money market funds.
Speaker 3: It makes sense to us. But surprisingly given all that flow,
Speaker 3: JPSD had its best year for flows last year as well,
Speaker 3: So we were up seven and a half billion net,
Speaker 3: just shy of ten billion gross, and that was a
Speaker 3: record year for us. So, you know, does it hurt
Speaker 3: maybe a little bit but certainly we think we benefited
Speaker 3: as well.
Speaker 1: So looking ahead, how do you see the role of
Speaker 1: liquidity focused strategies evolving as divestor demand shifts and markets change.
Speaker 3: Yeah, I mean I think so far we we've seen
Speaker 3: that and we've captured you know, that segmentation that we
Speaker 3: just mentioned, and I think maybe the next trade as
Speaker 3: we're here talking about the outlook for twenty twenty six
Speaker 3: and a lot of the questions that are in the
Speaker 3: marketplace right now, whether it's fed independence a minute, you know,
Speaker 3: the administrative policies coming out of Washington, tariffs, inflation, inflationary
Speaker 3: impulses from tariffs potentially, you know, I think there's still
Speaker 3: is going to be you know, volatility this year, and
Speaker 3: maybe the next source of cash coming into JPSD is
Speaker 3: more people looking again to shelter themselves from VALL. But
Speaker 3: I think big picture will continue to see folks moving
Speaker 3: out the curve, and so you know, I think the
Speaker 3: role continues to be that next step out of cash
Speaker 3: high you know, high quality, low VALL and then again
Speaker 3: sort of import in the storm of volatility. If if
Speaker 3: folks are looking to reduce duration, reduce exposures elsewhere in
Speaker 3: the portfolio. I mean, we've seen a lot of clients
Speaker 3: take risk off elsewhere in portfolios, parketing JPSD and then
Speaker 3: reallocate when the time was right for them. But I
Speaker 3: think you know, there's a lot of innovation going on
Speaker 3: in our space. There's a lot of competition coming, so
Speaker 3: we want to stay on top of that. So you
Speaker 3: know there are we're always we're constantly looking at that
Speaker 3: thinking about the potential for new products, and so you'll
Speaker 3: continue to see us discern that.
Speaker 4: I want to jump in and ask, this is something
Speaker 4: we study all the time. Because active finally found its
Speaker 4: sputting right, and so we said what happened? We studied,
Speaker 4: We had all kinds of theories because organic flows. You
Speaker 4: guys have got organic flows. It's hard. It's like you
Speaker 4: crack the code. I think I've figured it out. So
Speaker 4: we have this chart. We look at active share and
Speaker 4: fee on you can picture a chart right, and if
Speaker 4: you draw a forty five degree angle between those two,
Speaker 4: the stuff that's below that line tennessee outflows. So if
Speaker 4: you have a lot of beta, so low active share
Speaker 4: and a high fee, those are the mutual funds that
Speaker 4: tennessee outflows. If you have a higher active shore, I
Speaker 4: mean a lower active share, but a low you do fine.
Speaker 4: Jetpy's kind of in the middle but above So like
Speaker 4: you have a sixty five percent active share, thirty five
Speaker 4: basis point fee. We don't do it for bonds, but
Speaker 4: I'd say eighteen BIPs for JPST given all you just
Speaker 4: mentioned with all those managers, that's a lot of active
Speaker 4: for eighteen BIPs. And so how important is fee? We
Speaker 4: used to say that JP Morgan to get that brand
Speaker 4: name it something around Van Guardian. Fee was really half
Speaker 4: the battle. Performance is the other half. But that's a
Speaker 4: pretty big deal for an advisor to be like, Hey,
Speaker 4: tell their client I got you JP Morgan, and you
Speaker 4: know they're all cost obsessed and they got you for
Speaker 4: a price that feels institutional. How important is that to
Speaker 4: this whole thing? The data does bear it out, it
Speaker 4: seems like.
Speaker 5: So when we first launched jetpi in twenty twenty, our
Speaker 5: goal was to say, we want to hope people like
Speaker 5: what we do, how we do it, and what they're
Speaker 5: going to get, and not let fees get in the way.
Speaker 5: So if you actually look at where jepuis priced in
Speaker 5: twenty twenty, it was by far the lowest in the
Speaker 5: category and the competitive landscape all came to us at
Speaker 5: that level.
Speaker 2: But I'd also say.
Speaker 5: And you know this quite well, Eric, you know, the
Speaker 5: barriers to entry to an ETF right now are near zero.
Speaker 2: Right you got one.
Speaker 5: Hundred grand and an idea, go to a platform and
Speaker 5: you can launch it. But you don't have a cap
Speaker 5: markets team, you don't have market makers that are gona
Speaker 5: support your product. You're not gonna have that middle office
Speaker 5: back off as that infrastructure. You're not gonna have investment
Speaker 5: specials to have talked to you about what to expect.
Speaker 5: So having that JP Morgan brand is almost, I think
Speaker 5: very much a good housekeeping silk approval, which I'm pretty
Speaker 5: blessed to have. In addition, you know, doing something that
Speaker 5: once again is a good value. I mean, to do
Speaker 5: all of this stuff yourself, watch options, expire, trade as
Speaker 5: many bonds as James trades, to actually make sure that
Speaker 5: your your distributions happen on time, to make sure that
Speaker 5: you're having all of that together. I mean, where else
Speaker 5: can you get you know, twenty analysts with one ninety
Speaker 5: million dollars research budget and five thousand management meetings per year.
Speaker 2: For thirty five BIPs pretty hard to get.
Speaker 5: So I think it's very much a value proposition. And
Speaker 5: if you look at actually in the driven income or
Speaker 5: even the headge equity or the buffert space, you know,
Speaker 5: I would say, when you look at that line that
Speaker 5: you just talked about, I would say, a good chunk
Speaker 5: of the strategy that use derivatives. If not, you know,
Speaker 5: probably over seventy five percent are either passive or they're
Speaker 5: active on the option side, not the stock side. And
Speaker 5: so I think thirty five BIPs, JP Morgan, that infrastructure
Speaker 5: and that support you get from our client advisors, our
Speaker 5: investment specialists, our portfolio managers. I'm not sure why we're
Speaker 5: given it away at thirty five BIPs.
Speaker 4: Are so, I mean, we have the mutual fund share class.
Speaker 4: A lot of people listen to this podcast are in
Speaker 4: the mutual fund industry, so a lot of them are.
Speaker 4: Did you know that there's like five hundred mutual funds
Speaker 4: that don't have an ETF yet, and so there's plenty
Speaker 4: of people thinking about and you guys are like the
Speaker 4: shining models for like how to succeed. So it was
Speaker 4: actually firms, yeah, firm, sorry, five hundred firms out there,
Speaker 4: and they're like, how can we do this? And so
Speaker 4: you guys came at the R six class of your
Speaker 4: roof for fun, and I just think it was a
Speaker 4: brilliant move. You know, sometimes if you tiptoe, you try
Speaker 4: to like baby step in, it's you just kind of
Speaker 4: like rip the band aid off. Came in at the
Speaker 4: R six and it worked out well.
Speaker 5: And it's not just coming at the R six. I
Speaker 5: mean we were all in, James, you launched in twenty seventeen, right,
Speaker 5: so we were all in and fully committed because the
Speaker 5: rapper does have benefits, you know, fees, transparency, liquidity, tax efficiency.
Speaker 5: I mean it's just a better mouse trap. And once
Speaker 5: we were you know, once we had the opportunity to
Speaker 5: deliver that better mouse trap.
Speaker 2: I mean we were all in from the top down.
Speaker 4: Error. All right, you're gonna love this question. It's starting
Speaker 4: to feel like a commercial for for you bows and
Speaker 4: but hey, look you had a good year.
Speaker 2: What can I say?
Speaker 4: I did the numbers and this is about four or
Speaker 4: five months ago though, so, but I'm sure they're in
Speaker 4: the ballpark. I was stunned.
Speaker 2: We have this new league table.
Speaker 4: We can track the market share of anything, right, So
Speaker 4: I was looking at active total active assets in the
Speaker 4: US mutual fund plus ETF, and I knows JP Morgan
Speaker 4: in the past like five years had passed pimpcoh DFA,
Speaker 4: and then most recently tro Price to be fourth. That
Speaker 4: would be behind Capital Group, Fidelity and Vanguard. That's a
Speaker 4: lot of people to pass. And you took in four
Speaker 4: times more cash than any other active manager in the
Speaker 4: past year. That's crazy. So when I go out on
Speaker 4: the road, I'm like, you should study these guys. They
Speaker 4: clearly know what's going on.
Speaker 2: You don't need to say it to anybody.
Speaker 4: But half to battle is somehow stopping the bleeding in
Speaker 4: the mutual funds Because some other companies I won't mention
Speaker 4: their names, they'll have a lot of ETF inflows, But
Speaker 4: then you look at the mutual funds and it's almost
Speaker 4: equal outflows. You guys, the reason you're so net positive
Speaker 4: versus the peers is you don't have the bleed on
Speaker 4: the mutual funds. Why how's that work?
Speaker 2: I wish there was a simple answer.
Speaker 5: I would say that you know we have You know,
Speaker 5: if you help people understand what you're doing, why you're dealing,
Speaker 5: what would be a good environment for your strategies. What
Speaker 5: would be a challenge environment for your strategies. I think, yes,
Speaker 5: staying power. I think there's obviously, as you know, Eric,
Speaker 5: there's four p's people, process, philosophy, and performance. You know,
Speaker 5: I would say the landscape for years was look at
Speaker 5: my strategy and it's great performance. But if you don't
Speaker 5: understand the first three pre's, that performance turns you sell it.
Speaker 5: It's not sticky. We've always led with Look at our
Speaker 5: people here at JP Morgan, look at our philosophy when
Speaker 5: it comes to how we invest, and I mean James
Speaker 5: and I spent a lot of time talking about philosophy,
Speaker 5: how we add things to our portfolios, and how we
Speaker 5: think about risk and how we think about return and
Speaker 5: think about the process. I mean, if you have an
Speaker 5: unpredictable process, you become uninvestable. So we spend a lot
Speaker 5: of time on the first three piece and the fourth
Speaker 5: P is an outcome, and obviously you have to deliver
Speaker 5: on the fourth P. But if you'll lead with the
Speaker 5: fourth P, acids are not sticky and they're transient.
Speaker 3: I think in our space, to be honest, I mean
Speaker 3: we have seen our mutual funds have some draw down
Speaker 3: and obviously migration towards the ETF. But I think by
Speaker 3: and large, there's still clients that, especially on in the
Speaker 3: institution of space, that are still have not you know,
Speaker 3: flipped over to ETS and are still working on whether
Speaker 3: it's ima changes or board changes, and they're just obviously
Speaker 3: slow to move. So there are definitely still clients that
Speaker 3: have an appetite for mutual funds in our space. But
Speaker 3: we have seen, you know that now the transition really
Speaker 3: has been especially on the advisor side, you know, to
Speaker 3: adoption of those the ets obviously, and.
Speaker 5: At this point there's still some people that can't own ETFs,
Speaker 5: so those assets and mutual funds are probably sort of sticky,
Speaker 5: and given the massive market appreciation over the last three, five,
Speaker 5: ten years, there's many people that also don't want that
Speaker 5: tax of selling the mutual funds. So I would expect,
Speaker 5: you know, one person's opinion, you know, mutual funds to
Speaker 5: be you know flat plus mi us a little bit
Speaker 5: and ETFs to be the growth engine for as the
Speaker 5: managers in the future.
Speaker 1: Eric, Unfortunately we need to end here, but this was great,
Speaker 1: Hamilton James, thank you so.
Speaker 2: Much, Thanks for having us, for having us, thanks for.
Speaker 1: Having us here. Actually too and Eric. Thanks for reading
Speaker 1: my host on this episode. My pleasure was fun. I
Speaker 1: also want to thank our listeners. If you like the episode,
Speaker 1: please subscribe and leave a review. If you'd like to
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Speaker 1: next episode. This is David Cohne with Inside Active