Markets have been volatile for a few months now, and with the turmoil and uncertainty seen, now seems like the perfect time for active management within mutual funds and ETFs. Dave Nadig, CIO and Director of Research at ETF Trends and ETF Database, and Bryon Lake, Global Head of ETF Solutions for JPMorgan Asset Management, joined CNBC’s Bob Pisani on “ETF Edge” to discuss the role of active management in 2022.
It’s been a great year so far for ETF flows, with ETFs bringing in between $13 billion and $14 billion in the past five trading sessions, but investors are diversifying their allocations primarily into internationally oriented ETFs , explains Nadig. So far, about two-thirds of flows have been to emerging and developed markets internationally, with domestic stocks bringing in between $4 billion and $5 billion over the past five trading sessions.
“To me, that means we’ve really had a series of advisors and investors looking to buy the dip here. We haven’t seen any evidence that the ETF side of the balance sheet, if you will, is what’s freaking out and hitting the button to sell,” Nadig says.
Current market volatility will help drive the growing adoption of active ETFs by investors, and Nadig believes active ETFs will continue to grow in market share, with the potential to reach 15% this year. Volatility is something that’s good for the story of active management, Nadig says, and he thinks active ETFs have a place for investors pricing the corners of their portfolios.
Downside protection plays have seen a lot of flows over the past couple of years, whether it’s tunneling strategies, put or call options, or various combinations within stocks. Additionally, mutual fund strategy conversions are happening at a faster rate, both conversions of existing mutual funds to ETF wraps and ETF clones of mutual fund strategies. All of these provide more options and bring both more active managers and investors into the space.
“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,” Nadig says.
JPMorgan’s view on active management in 2022
Lake explains that active ETFs today are really a “best of both worlds” kind of scenario because they combine the efficiency benefits of ETFs with the knowledge that active managers have of their portfolios.
the JPMorgan Equity Premium Income ETF (JEPI) is one of the ETF categories that offers investors the ability to maintain equity exposure with downside protection. JEPI is the fastest growing active stock ETF and offers between 6% and 9% revenue stream, says Lake.
“Because of the way the strategy is set up, it should only have about two-thirds the risk of the S&P 500,” says Lake. The fund achieves this by holding a basket of US equity securities and then making calls on the holdings which provide a premium to the fund; this allows for both income protection and downside protection.
Hear even more from Dave Nadig on the ETF Edge podcast:
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