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.
JPMorgan already christened four active mutual funds into passive this year. It allows the asset manager to cut costs, and charge lower fees. As an ETF, more information is available about what is in the funds, and an opportunity to save on taxes arises.
The fund house board expects to make a decision on the conversions in February 2023. If approved, the mutual funds will be converted into actively managed, transparent ETFs with essentially the same investment strategies as the current mutual funds.
These would include the US Aggregate Bond ETF ($1.2 billion), the High Yield Research Enhanced ETF ($418 million) and the Corporate Bond Research Enhanced ETF ($48 million), according to the Financial Times.
Shift to passive
The decision is part of a larger trend involving a shift from actively managed mutual funds to passive index funds. This year saw an acceleration in the conversion to passive funds boosted by a jump in flows to bond and mixed funds, according to JPMorgan Asset Management’s own research.
Data from the fund house shows that the share of passive funds in total assets under management of US-based equity funds, exceeded 50 per cent at the beginning of this year. However, the advance of passive equity funds did not rise as much as their passive fixed-income counterparts. This category rose from 46 per cent of total assets under management at the end of 2019 to 52 per cent in August of 2022, according to JPMorgan.
According to data from EPFR, a provider of fund flow data, the trend towards passive investing is not limited to the US. As of mid-October, passive equity and bond funds have attracted a total of $379 billion and $178 billion in fund flows worldwide, respectively, while active equity and bond funds have seen outflows of $215 billion and $442 billion, respectively, the Financial Times reported late last month.
Passive outperforms active
High costs and poor performance seem to be a major driving factor towards passive investment strategies. Earlier this year, data from Morningstar already showed that 2022, despite increased volatility, was again not a best year for active managers.
The Morningstar European Active/Passive Barometer, a semi-annual report that compares the performance of European-based active funds with that of passive funds in their respective Morningstar categories, showed that active managers once again lagged behind passive alternatives in 2022.