ETFs

JPMorgan Asset Management plans to convert a number of active mutual funds in the US to passive ETFs next year. The asset manager is not alone. Globally, passive is starting to catch up with active.

US-based Strive Asset Management knows how to address sentiment among a section of Americans. Strive launched two ETFs this week. One is called “God Bless America” with the ticker symbol YALL. The other ETF has the ticker DRLL and invests mainly in oil and gas (76 per cent). They have since been dubbed as anti-woke ETFs in the media.

Despite volatility sparked by Russia’s invasion of Ukraine at the end of the month, global inflows into equity funds and exchange traded products increased in February to 99.6 billion dollars from 74.4 billion in January, BlackRock said on Thursday in a note to investors.

Fixed income products again saw a resumption of inflows, of 16 billion dollars, compared to net outflows in February. 

The future of some 855 funds with exposure to Russia is shrouded in uncertainty as the turmoil in Russia’s financial markets continued on Monday. JP Morgan AM and Prosperity on Monday suspended their funds with assets in Russia. East Capital warned of “a very high level of disruption”. Asset managers are facing requests for information from their regulators.

Russia ETFs or funds are dropping out of the market in droves. Some are still open, as market makers manage to keep them barely alive. But for how much longer?

“All mutual funds become ETFs”, Detlef Glow, head of research at Lipper, wrote recently. Only passive and “real” active remain. Considering the inflow of over 500 billion dollars in the first six months into passive, that sounds plausible. But aren’t Lipper missing something? Passive and the hottest topic of the moment - ESG - do not go well together.

In response to the SRI trend, State Street Global Advisors (SSGA) has been expanding its offering of ESG products. But these funds do not replace non-sustainable variants, says Carlo Funk, head of ESG investment strategy for EMEA at SSGA.

ETFs have remained open for business during the coronacrisis, while credit markets were largely frozen. But ETFs were still able to cope with unprecedented outflows, providing investors with badly needed liquidity. However, this may just be a Pyrrhus victory for the index providers.

ETFs can be a source of systemic risk because they can induce important feedback effects in markets, such as increased volatility in periods of market stress. However, these effects can be mitigated by regulators, according to a research paper by Maureen O’Hara (pictured) of Cornell University and assistent-professor Ayan Bhattacharya of the City University of New York.