Head of Canada for US giant sees appetite for active ETFs, even among institutions
JP Morgan entered the Canadian ETF market earlier this month with the launch of two active ETFs on the TSX. Both strategies — JPMorgan US Equity Premium Income Active ETF (JEPI) and the JPMorgan Nasdaq Equity Premium Income Active ETF (JEPQ) — involve active management and income overlays through the sale of options. Perhaps more importantly, they represent the first of what JP Morgan Asset Management (JPMAM) hopes will be a suite of active ETFs listed in the Canadian market.
Travis Hughes, head of Canada at JP Morgan Asset Management, sat down with WP to discuss his firm’s strategy in Canada. He explained why they’ve launched these ETFs in Canada now, even when Canadians can buy their US equivalents on US markets. He outlined the sort of products that JP Morgan wants to launch in Canada going forward, and the strategic niche they want to remain in. He emphasized, as well, that the entry into ETFs is not just a retail strategy. Rather, it’s something that institutions can engage with meaningfully.
“The launch of these ETFs is really a natural transition or segue into this next part of the market…We’ve seen the growth of the ETF market in Canada and globally. Not only are we seeing the overall ETF market growing, but we’re seeing the use of active ETFs grow,” Hughes says. “In our heart of hearts we are an active manager. Our goal is to be the best active ETF manager globally.”
The decision to launch in Canada — despite the availability of these ETFs to Canadians via US markets — has to do with minimizing the cross-border nuances that might have challenged some investors. The US versions of these ETFs paid distributions in USD, which was less advantageous to many Canadian investors.
Institutions, however, have had a longer track record with JP Morgan. The majority of the firm’s Canadian business is institutional and has been for the past 40 years. Hughes notes, however, that JPMAM has seen an uptick in the use of ETFs by their institutional clients. Whether for use in a segregated strategy, or for ease of rebalancing, there are a growing number of use cases for active ETFs in institutional portfolios.
The ETFs themselves hold actively managed portfolios of US equities, with options selling strategies overlaid to add income. Hughes notes that they launched these ETFs in Canada because they are among the most popular products in the US market. He sees the income components fitting relatively well in the foundation and endowment space where institutions are trying to achieve and distribute a certain amount of income on an annual basis.
These ETFs, however, are only the tip of the spear for JP Morgan in the Canadian ETF market. Hughes explains that Canadian investors can expect to see more ETFs brought to market where his firm believes they have a competitive advantage and they can leverage their global presence. That means they are unlikely to be offering Canadian equity or fixed income strategies anytime soon. They also won’t be offering index based portfolios as JPMAM is an avowedly active shop.
The areas that Hughes says we can probably expect products for include global equities, US equities, fixed income, and more options strategy ETFs. They are also exploring the idea of private asset products, aiming to capture some of the $40 trillion growth market for private assets.
“Our goal is not to have a huge platform of ETFs available in Canada,” Hughes says. “We will be very targeted with the relatively short list of best-in-class solutions, and I think they'll also be consistent with where we've had success globally.”
Hughes is aware the JP Morgan is entering a crowded Canadian ETF market. Canadian markets have more ETFs proportional to total AUM than our US equivalents. He expects, however, that JP Morgan will be able to differentiate itself in this market. Table stakes, he says, is the execution of these strategies and the delivery of investment results that meet or exceed expectations. Beyond that, he is leaning on the US behemoth’s thought leadership and client service standards.
“What we hope our institutional clients that have been with us for a long time, as well as new institutions see this as JP Morgan being thoughtful around the exposures and the structures that we bring to market,” Hughes says. “So if you think about segregated accounts, pulled funds, private vehicles, the ETF structure is the natural kind of next leg of that.”
