(Bloomberg) – JPMorgan Asset Management will convert a $1.1 billion fixed-income mutual fund into an ETF on Friday, joining a growing trend on Wall Street that is expected to see up to $1 trillion make the switch.
The JPMorgan Inflation Managed Bond Fund (ticker JIMAX) becomes the JPMorgan Inflation Managed Bond ETF (JCPI) after the close, according to a notice on the fund’s website. It’s the first of four conversions planned by the company, which will shift about $9 billion in assets into exchange-traded funds by mid-June.
Just a year after the first official conversion between the two investment structures, several issuers have now made the switch, as investors increasingly favor ETFs that are generally less expensive and more tax-efficient.
More than $160 billion left mutual funds in 2022, as ETFs absorbed more than $200 billion, according to data from the Investment Company Institute.
“Conversions in general will continue to accelerate, proving to be an attractive avenue for inbounds,” said Jill DelSignore, general manager of FLX Networks. “Coming to market with a track record and assets is extremely important.”
Bloomberg Intelligence estimates that up to $1 trillion could ultimately be converted into ETFs from mutual funds.
While that would be a huge boost to the $7 trillion US ETF market, it represents about 5% of the mutual fund world. The challenge for most funds is that switching is complex and not suitable for all products. Meanwhile, the US retirement system remains heavily focused on the more established vehicle.
The largest conversions to date have come from quantitative giant Dimensional Fund Advisors, which returned around $29 billion in June last year. Other movers include Motley Fool Asset Management, which completed a nearly $1 billion transfer in December. Franklin Templeton plans to join the conversion club later in 2022.
As more of them make the switch, asset managers will face “potentially telling” moments if strategies fail to attract more cash, DelSignore believes.
“ETF packaging is amazing, but it’s not magic,” she said.
JCPI’s fee rate will be 0.25%, cheaper than the fees on the various share classes of the mutual fund. The conversion will take JPMorgan’s stable of US ETFs to 41, according to data compiled by Bloomberg.