Investors have quickly turned to active ETFs to enhance their returns and boost their portfolio’s performance – and it’s easy to see why. The ETF structure continues to provide all the benefits of active management in a low-cost and tax-advantaged package. With that in mind, it’s easy to see how billions of assets have flown into active ETFs over the last year or so.
And the launches keep coming.
But these launches are following a certain pattern, with investment bank J.P. Morgan’s latest following suit. Some sectors and asset classes are better than others for active management. JPM’s latest launch underscores this fact and could bring better returns for portfolios.
J.P. Morgan’s Newest Active ETFs
Investment bank J.P. Morgan has quickly built out an impressive suite of ETFs – both active and passive – in a short amount of time. Once an outlier in the world of ETFs, JPM has used the strength of active management to build out a series of funds that have garnered some significant assets. In fact, the investment firm has some of the largest active ETFs overall under its umbrella.
It’s latest two launches build on that potential.
At the end of the year, the investment bank launched the JPMorgan U.S. Tech Leaders ETF (JTEK) and JPMorgan Healthcare Leaders ETF (JDOC).
JTEK features a flexible, all-cap approach and follows the bank’s J.P. Morgan U.S. Technology Leaders Strategy. The ETF will invest in equity securities issued by technology and technology-enabled companies, with the idea that these firms are looking to “develop or harness new technologies to reimagine products, establish new markets or attain leadership in existing markets.”
Leveraging an existing healthcare strategy used at the bank, JDOC will also invest in equity securities issued by pharmaceutical, biotechnology, healthcare services, healthcare technology, medical technology and life sciences companies.
Both funds seek capital appreciation and will charge 0.65% or $65 per $10,000 invested in fees. Additionally, both funds’ underlying strategies are used by managers in private and separately managed accounts. JPM’s decision to bring these managers with long tenures and successful track records to the world of ETFs is a testament to the fund structure and its popularity.
Some Sectors Are Better Than Others
Ultimately, the launch will provide investors access to two high-growth sectors with an active touch. For ETF nerds and financial pundits, it underscores that some sectors are better than others for active management.
Active continues to win in places where investors can exploit inefficiencies. For example, the fixed-income markets. Because many bond indexes focus on a small slice of fixed income securities, managers can do deep credit research and potentially score better values and higher yields while managing duration/interest rate risk.
The same could be said for tech and healthcare.
Both sectors are high growth and feature plenty of differences amongst various firms. Managers can exploit features such as pipelines, deal potential, cash flows of individual drugs, etc. Tech firms can be evaluated on their ability to drive change, revenue growth and partnerships. Moreover, market cap and size can be exploited to find additional growth, capital appreciation and potential.
With indexing, investors are stuck with larger firms dominating the indexes. For example, Johnson & Johnson has been a dominant firm in many healthcare indexes for decades. And while there is nothing wrong with JNJ, its growth has stalled in recent years. It took some massive corporate overhauling and a splitting of the company to reignite growth. Index investors were potentially underserved during that time.
But active management can provide the edge. Not looking like an index can provide better returns. According to the latest S&P Indices vs. Active (SPIVA) report , both tech and healthcare are some of the top categories where active management really makes a difference and provides better returns than their passive peers.
Perfect for Portfolios
J.P. Morgan’s new ETFs covering these high-growth sectors are perfect examples of where active management can play a big role in a portfolio. Here, investors can use them in a core-and-explore situation. Holding larger and broader passive funds, the two active ETFs can provide some much-needed spice and growth potential.
Better still is that high-growth potential comes with tax advantages. As we’ve said before, the creation/redemption mechanism for ETFs allows managers to push off many of the internal capital gains that investors would otherwise be on the hook for come tax time. In high-growth sectors, such as tech and healthcare, this is a godsend for portfolios.
J.P. Morgan Active ETFs
These funds were selected based on their 1-year total return, which ranges from 3.6% to 35.4%. They have expenses between 0.18% to 0.41% and assets under management between $600M to $30B. Their dividend yields are between 2.7% and 8%.
| Ticker | Name | AUM | 1-year Total Total Ret (%) | Yield | Exp Ratio | Security Type | Actively Managed? |
|---|---|---|---|---|---|---|---|
| JEPQ | JPMorgan Nasdaq Equity Premium Income ETF | $5.22B | 35.4% | 7.9% | 0.35% | ETF | Yes |
| JIRE | JPMorgan International Research Enhanced Equity ETF | $5.38B | 14.8% | 2.7% | 0.30% | ETF | Yes |
| JEPI | JPMorgan Equity Premium Income ETF | $29.37B | 13.2% | 6.4% | 0.35% | ETF | Yes |
| JPIE | JPMorgan Income ETF | $605.3M | 6.3% | 6.3% | 0.41% | ETF | Yes |
| JMUB | JPMorgan Municipal ETF | $642.1M | 5.5% | 3.3% | 0.18% | ETF | Yes |
| JPST | JPMorgan Ultra-Short Income ETF | $22.76B | 5.2% | 5.2% | 0.18% | ETF | Yes |
| JEMA | JPMorgan ActiveBuilders Emerging Markets Equity ETF | $1.06B | 4.5% | 3% | 0.33% | ETF | Yes |
| JCPB | JPMorgan Core Plus Bond ETF | $1.45B | 4.1% | 5.2% | 0.40% | ETF | Yes |
| JMST | JPMorgan Ultra-Short Municipal Income ETF | $2.57B | 3.6% | 3.3% | 0.18% | ETF | Yes |
In the end, active management is here to stay, and JPM’s latest launches are great examples of where active can play a big role for investors. Sectors with high inefficiencies that can be exploited should continue to garner much of the lion’s share of assets and new launches – that’s a great thing for portfolios. It’s here that being active can really make a difference.
The Bottom Line
J.P. Morgan’s latest two active ETF launches are perfect examples of how active can win. By exploiting sectors, such as tech and healthcare, with large inefficacies vs. indexes, the funds are a major win for the active ETF movement and portfolios.