Asset managers looking to replicate the success of JPMorgan’s biggest actively-managed exchange-traded funds will likely have to do it without the same market tailwind the ETFs enjoyed.
REX Shares filed an application with US regulators Thursday for the REX FANG Equity Premium Income ETF (ticker FEPI), which would track and sell call options on the largest tech stocks. It lands a week after Goldman Sachs Group Inc. applied for two similar income-focused funds that would also employ call-writing strategies.
The trio of proposed ETFs closely resemble two of JPMorgan’s blockbuster funds: the $26.7 billion JPMorgan Equity Premium Income ETF (ticker JEPI) and the $3.4 billion JPMorgan Nasdaq Equity Premium Income ETF (JEPQ).
While an aggressive Federal Reserve spurred a hunt for income that funneled billions into JEPI and JEPQ over the past year, industry analysts warn that the tide is starting to turn. With the central bank nearing the end of its hiking cycle and stocks pushing further into bull-market territory amid the buzz around artificial intelligence, the ETFs have lagged big benchmarks such as the S&P 500 and Nasdaq 100 this year.
That market backdrop bodes poorly for copycat products, according to Nate Geraci, president of the advisory firm The ETF Store.
“Despite fairly sizeable underperformance this year, JEPI has still attracted over $9 billion in new money – it’s simply a machine. That type of monstrous success is always going to attract copycats,” said Geraci. “The problem with copycats is they’re typically late to the party – and that feels like the case with these new filings.”
Spokespeople REX Shares and Goldman Sachs both declined to comment.
“Both JEPI and JEPQ are unique solutions for investors to drive better outcomes,” Bryon Lake, JPMorgan Asset Management’s global head of ETF solutions, said in an email. “JEPI is focused on high-quality stocks with strong balance sheets based on our fundamental active management which allowed it to have a standout year in 2022 and positions it for potentially rocky markets.”
JEPI has climbed roughly 4% on a total return basis this year, falling behind the S&P 500’s 13% advance. While JEPQ has fared better with a 22% gain, that compares to a 33% return for the Nasdaq 100.
Still, money continues to flood into the funds. JEPI, which became the largest actively managed ETF this year, has pulled in nearly $9.2 billion in 2023 — the most of any active strategy. JEPQ is in second place with a $2.1 billion haul.
“We’re on the precipice, that tipping point when people are going to wake up to that underperformance,” Valerie Grimba, director of Global ETF sales and strategy at RBC Capital Markets, said on Bloomberg Television’s ETF IQ. “Right now they’re happy for that yield and that bit of protection, but now that markets are ripping higher it’s going to get attention and we’re potentially going to see a rotation out.”
JEPI and JEPQ’s blockbuster inflows have paced a boom in the active ETF space broadly. Actively managed strategies have accounted for roughly 27% of the $167 billion that’s been shoveled into US ETFs in 2023, a record share. That’s fueled an arms race for dominance among heavyweight issuers including Dimensional Fund Advisors and Morgan Stanley.
While it’s clear that Goldman is among those trying to carve out a foothold in that arena, last week’s filings are “pretty late,” said Bloomberg Intelligence’s Eric Balchunas. However, the bank’s powerful distribution network will likely help the new funds accumulate assets from Goldman’s clients.
“JEPI taking in money despite being down and lagging I think shows JPMorgan’s distribution power. Goldman has that as well,” Balchunas said. “The distribution is huge, and Goldman has that distribution.”
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