JPMorgan’s $10 Billion Mutual Fund-to-ETF Conversion Isn’t a ‘Tipping Point’

JPMorgan is poised to splash nearly $10 billion into the exchange-traded fund space.

The company will begin converting four of its mutual funds to ETFs in April, bringing its Inflation Managed Bond Fund, Market Expansion Enhanced Index Fund, Realty Income Fund and International Research Enhanced Equity Fund to the lower-cost investment structure and more tax-efficient.

But that’s not necessarily a “tipping point” for ETF conversions, JP Morgan Asset Management’s Bryon Lake told CNBC’s “ETF Edge” on Wednesday.

“We know that investors use mutual funds across their portfolio of businesses. We’re doing very well in this area,” said the firm’s global head of ETF solutions.

JP Morgan manages $800 billion in its mutual fund franchise and is actively working to increase its alternative fund and ETF offerings, Lake said.

“We know investors are starting to incorporate more ETFs into their portfolios,” Lake said. “But they also use mutual funds and those do the job as well.”

Conversions are just one of many growth drivers in the ETF industry, researcher Dave Nadig said in the same interview.

Global ETFs saw north of $800 trillion in inflows in 2021. Total US ETF assets under management topped $7 trillion at the end of last year, from less than $3 trillion before the pandemic.

“We’re going to see all the major active and passive asset managers in the ETF space,” said Nadig, director of research and chief investment officer at ETF Trends. “Some of them will convert mutual funds where it makes sense.”

As for those conversions, “we’re in the middle of the flood. The water is coming up a little slower than expected,” Nadig said. “You don’t see the wave coming down the wall.”

Next up will be Capital Group, which announced earlier this week that it had licensed Fidelity’s non-transparent active management system to convert its mutual funds into ETFs, Nadig said.

“All of that money will eventually show up in the ETF space, but whether it converts or not is largely irrelevant,” he said. “The thing is, active managers are here. They’re coming in even faster than expected. And I suspect it’s going to be a big year for active flows.”

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Dolores W. Simon