JPMorgan Rises on Tide of Active ETFs

At a time when many investors have turned tail on traditional actively managed funds to instead pour money into index funds, J.P. Morgan Asset Management has found a different recipe for success.

The giant bank’s mutual fund arm parlayed what had been a niche investment strategy based on options into an exchange-traded fund juggernaut that has hauled in tens of billions. This franchise is led by the world’s largest actively managed ETF, the $37 billion JPMorgan Equity Premium Income ETF JEPI.

Heavy investor interest in JPMorgan’s active ETFs is complemented by other successes, according to Morningstar analysts. That includes a traditional value stock fund that earned this year’s Morningstar Outstanding Portfolio Manager Award, strong fixed-income funds, and solid growth for the firm’s funds outside of Europe.

The result is that in the United States, J.P. Morgan Asset Management is the eighth-largest mutual fund firm by assets, up from 11th place in 2019. It ranks sixth in terms of ETF assets in the US, and second among US active ETF assets, behind Dimensional Financial Advisors.

“There’s no secret sauce; they’re just doing their jobs well,” says Paul Olmsted, a senior manager research analyst for Morningstar.

The firm is a bit of a rarity among fund companies, being a banking conglomerate that is also a player in the fund industry, with $670 billion in US fund assets under management as of the end of October. JPMorgan’s rival large banking firms have nothing like its foothold in the fund industry. Goldman Sachs Asset Management is the 21st largest firm with $181 billion, while Morgan Stanley Investment Management is in 63rd place with $41 billion (excluding assets at subsidiary companies Eaton Vance, Calvert, and Parametric). Other big commercial banks sold off their mutual fund businesses years ago.

So far in 2024, $31 billion has flowed into JPMorgan’s active ETFs, which represented 79% of the company’s total US fund flows in 2024 through the end of October. Along with JPMorgan Equity Premium Income ETF, the $18.6 billion JPMorgan Nasdaq Equity Premium Income ETF JEPQ has also pulled in billions from investors. More recently, JPMorgan’s other active ETFs have also begun to draw in rising interest from investors.

The Rise of Active ETFs and JPMorgan

JPMorgan’s course can be charted alongside the growth of active ETFs. For most of their history, ETFs were mostly index-tracking funds. But the landscape changed dramatically in 2019 when the SEC made it easier for fund companies to launch active strategies in an ETF format.

In 2019, active ETFs made up 3% of JPMorgan’s US fund assets, slightly higher than the US fund industry. As of October of this year, the firm’s 36 active ETFs made up 17.8% of JPMorgan’s total US assets, according to Morningstar Direct—several times the 2.7% average across the industry.

JPMorgan launched its first US active ETF in 2016, the JPMorgan Diversified Alternatives ETF, which has since closed. Its earlier, still-surviving active ETF, the JPMorgan International Bond Opportunities ETF JPIB, opened in 2017. Today the bond ETF holds $498 million in assets and carries a Morningstar Medalist Rating of Silver.

The JPMorgan Equity Premium ETF was launched in 2020, just as the active ETF boom began to take off. In 2022, the firm launched the JPMorgan Nasdaq Equity Premium Income ETF, which has recently supplanted the Equity Premium ETF as the company’s top draw. “JPMorgan has been focused on active ETFs, but they don’t just create them because it’s the latest fad. They want to make sure they’re thoughtful about it,” says Olmsted.

Options Income Funds Lead the Way

The Equity Premium and Nasdaq Equity Premium ETFs are by far the largest of JPMorgan’s active ETFs. The funds together make up close to half of JPMorgan’s total active ETF assets and 8% of its total fund assets.

Both funds work off a strategy that involves holding stocks and selling call options. Call options are the right to buy an asset at a certain price. The two funds use derivatives called equity-linked notes, which mimic the income from selling call options without actually trading the options. Market volatility, which increases income from the sale of options, drove up the funds’ yields to the point where they were still attractive even as the Fed’s hike in interest rates drove up bond yields.

“JEPI and JEPQ’s unique structure allows them to count all of their options income toward dividend yields—instead of capital gains or return of capital—which rose in the past few years thanks to market volatility,” says Lan Anh Tran, manager research analyst at Morningstar. This meant their dividend yield was higher than those of similar funds, which distributed part of their income through capital gains distributions, which wouldn’t be counted under dividend yields. “Most people look at dividend yield instead of a holistic look at total payout,” says Tran. So the fund’s already-high income looked even larger relative to other funds.

Both funds have been blockbuster successes for JPMorgan. Equity Premium ETF raked in $5.5 billion in 2021, and then nearly $13 billion in both 2022 and 2023. Investor dollars heading to the fund have slowed this year with the fund having pulled in $3.6 billion through October. Meanwhile, the Nasdaq Premium ETF has stepped up, having pulled in $8.4 billion in 2024.

The dominance of the two funds was clear in 2023, when Equity Premium and Nasdaq Equity Premium respectively took in the most and second-most flows of any active ETF. Those two funds made up 16.2% of the $121 billion total money heading into US active ETFs that year. They made up 66% of JPMorgan’s US active ETF flows in 2022 and 85% in 2023.

Interest Growing in Other JPMorgan ETFs

While the big story about JPMorgan’s active ETFs has been the two equity premium income funds, investor interest appears to be broadening among the firm’s active ETF lineup.

In 2024, six other JPMorgan active ETFs pulled in over a billion dollars in flows: the JPMorgan Ultra-Short Income ETF JPST, the JPMorgan Global Select Equity ETF JGLO, the JPMorgan Active Growth ETF JGRO, the JPMorgan Core Plus Bond ETF JCPB, the JPMorgan Hedged Equity Laddered Overlay ETF HELO, and the JPMorgan Income ETF JPIE.

JPMorgan’s successes aren’t limited to equity and derivative funds. The $48.3 billion JPMorgan Core Bond Fund JCBUX is the seventh-largest actively managed bond fund in the US with a Morningstar Medalist Rating of Gold.

One thing that distinguishes JPMorgan’s bond funds is their centralized platform for fixed-income investing, says Olmsted, who follows the JPMorgan Core Bond Fund.

“They call it the fixed-income, currency, commodities platform,” he says. “They use common resources. It used to be a very fragmented firm from an asset-management perspective … and even though they have different locations, it is truly a cohesive, common platform.”

JPMorgan’s Active ETF Medalist Ratings Shine

The increasing percentage of JPMorgan’s flows going to its active ETFs may represent investors’ alignment with Morningstar’s rating on JPMorgan’s higher-quality funds. As of the end of August, 45% of assets in JPMorgan funds were in funds with a Medalist Rating of Bronze or higher. For JPMorgan’s active ETFs, that number is 84%, and Silver Medalist funds alone were 46%.

One major reason for those higher ratings is the lower fees sported by active ETFs. “I think, for the most part, this probably has to do with fees, because you might have four share classes within a [open-ended] fund. Each of the share classes will have different Medalist Ratings because of fees and ETFs generally have lower fees, so will have higher Medalist Ratings,” says Olmsted.

This plays into the ongoing move by investors into less-expensive funds, which ETFs often are.

International Strength and Personnel

In addition to having disproportionate strength in active ETFs, JPMorgan is stronger in international markets as well, Morningstar analysts note. The firm is in eighth place in terms of US fund assets, but in seventh place in terms of global fund assets and sixth place in European fund assets.

“I think something important to highlight with JPMorgan is their global reach. Unlike a lot of the asset managers that earn Above Average and High, they are really globally diversified,” says Alyssa Stankiewicz, an associate director of parent research for Morningstar.

“One reason JPMorgan ranks higher in Europe than in the US in terms of asset rankings is that firms like State Street, Invesco, and T. Rowe Price, who are so well-known and entrenched here in the US, haven’t built such a strong foothold in Europe,” she says. “Compared with T. Rowe Price, I think JPMorgan enjoyed more of an early mover advantage in Europe. JPMorgan has had funds there for over 40 years, about 15-20 years longer than TRP,” she added.

She explains that between its early embrace of active ETFs and its move into the European fund market before many of its competitors, JPMorgan has been eager to embrace new initiatives. “JPMorgan, compared with other asset managers, they’re not shy. I would say they have a sense of adventure.”

In addition, it has managed to both recruit and keep high-quality talent. “They don’t have a lot of turnover. Bigger firms often struggle with turnover. That does not seem to be the case here,” says Olmsted.

Meanwhile, just this year, Clare Hart, who had managed the $47.2 billion JPMorgan’s Equity Income Fund OIEJX, won Morningstar’s 2024 US Morningstar Outstanding Portfolio Manager Award. She retired on Sept. 5 but had spent 20 years as a portfolio manager. The fund, which has a Silver Medalist Rating from Morningstar, looks for large-cap value stocks with dividends of at least 2%, showing JPM’s strength in income-related funds. The fund is in the top quintile of the large-value category by return over the past 15 years.

“JPM top to bottom has an excellent staff and is always extremely professional, well-informed, and well-prepared for every interaction. In this regard, they’re the A-Team,” says Todd Trubey a senior manager research analyst for Morningstar and Morningstar analyst for the JPMorgan Equity Income Fund.

“They have a very experienced analyst staff to help their investment teams, who also tend to have sufficiently large, dedicated crews,” says Trubey. “Their portfolio managers tend to toe the line between investing with confidence/conviction and managing risk. Their strategies make sense, and they execute them very well.”