JPMorgan edges closer to zero fees in a push for passive

JPMorgan Chase’s investment arm has cut management fees a notch closer to zero for a new exchange traded fund, as it tries to gain a stronger hold in the booming market for low-cost investment products. 

The fund house, which has a total of $1.7tn under management, will charge just 20 cents for every $1,000 invested in a US stock ETF launched on Monday, undercutting equivalent products offered by rivals charging 30 cents.

The race to the bottom is a sign of JPMorgan Asset Management’s desire to increase its presence in the passive investing market after faltering efforts in recent years. It was relatively late to the ETF market, launching its first product in 2014, long after many peers had tried to dive in.

JPMAM now has $20bn under management across 34 ETF strategies. This compares with $1.7tn across 800 ETFs for BlackRock*, an early mover in the market through its 2009 acquisition of Barclays’ fund management unit.

The growth of passive investments is upending the business of asset management, draining revenues for firms as customers seek cheaper strategies that often perform as well as active strategies, if not better, over the long term. Last year $472bn flowed towards passive funds, while $488bn was drained from active equity funds around the world, according to EPFR data.

JPMAM’s launch establishes a new floor for fees in the product, which offers near-constant liquidity compared to mutual funds, in which investors wanting to cash out must wait until the end of a trading day.

The shift comes as active managers continue to struggle to deliver consistent, market-beating returns. Last year just 37 per cent of active managers did better than their benchmarks, compared to 51 per cent in 2017, investment bank Jefferies said in a research note on Monday. US equity managers have fared slightly better this year, with 55 per cent outshining the indices they are measured against since the start of the year.

“While a good start, this will need to be maintained for a sustained period before we see any meaningful change in active flow trends in our view,” wrote Daniel Fannon, a Jefferies analyst.

The competition on fees between large fund managers hit a new level of intensity last year when Fidelity Investments, the $2.4tn Boston-based fund manager, eliminated fees altogether on some index funds. These funds are offered in mutual-fund form and are not yet available as ETFs.

The JPMorgan BetaBuilders US Equity ETF, launched on Monday, will track large and midsized US stocks and will seek investment results closely corresponding to the Morningstar US Target Market Exposure index.

“BetaBuilders represent our strategy to deliver a comprehensive range of market exposures through portfolio building blocks,” said Ogden Hammond, global head of beta product and business development for JPMAM. “These launches add to our full range of active, strategic beta and passive ETF options, helping clients build stronger portfolios.”

*This article has been amended to include the most recent figures for BlackRock’s assets under management in ETFs