JPMorgan ETFs poised to compete with low-cost behemoths

JPMorgan Chase is finally gaining ground in the competitive ETF landscape with its BetaBuilder brand.

On Friday, two of the lender’s ETFs — the JPMorgan BetaBuilders Japan ETF (BBJP) and the JPMorgan BetaBuilders Europe ETF (BBEU) — saw strong inflows last week after stagnating since their inception last month. The Japan fund took in $654 million, while the Europe one absorbed $187 million over the five days ended July 13, both of which are records, albeit over a very short time frame.

JPMorgan launched its BetaBuilder ETFs on June 18, bringing out three portfolios designed to compete with BlackRock and Vanguard. The lender came in cheap, charging 30 basis points less for BBJP than the iShares MSCI Japan ETF and 51 basis points less for BBEU than the iShares Europe ETF. The funds are roughly the same price as similar offerings from Vanguard.

Exterior of JMorgan Chase headquarters
People sit inside the headquarters of JPMorgan Chase & Co. in New York, U.S., on Tuesday, January 12, 2016. JP Morgan Chase & Co. is scheduled to release earnings data on January 14. Photographer: Michael Nagle/Bloomberg

“You have to rip the Band-Aid off and play the fee-war game, because investors demand things cheap,” said Bloomberg Intelligence analyst Eric Balchunas.

In February, market rumors suggested that JPMorgan was looking to buy an ETF business that would boost its presence in the $3.5 trillion market. But with BetaBuilders it’s now growing fast despite the competitive hurdles banks typically face when going up against major money managers’ core products.

If the $665 million BBJP “takes in another $350 million between now and the end of summer, it will beat Bill Gross’s fund as the second-fastest ETF to hit $1 billion,” Balchunas said. The Pimco Active Bond ETF (BOND) now has $2.1 billion in assets.

Still, despite the inflows, Vanguard and BlackRock’s funds tracking European and Japanese equities are behemoths with more than $37 billion in combined ETF assets. So JPMorgan has a lot of catching up to do, and the low-cost route will probably remain its best way in. When it comes to building an ETF business, that often is the only solution.

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These eye-popping returns didn’t come cheap. Expense ratios averaged more than 1% and went as high as 158 basis points.

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As for last week’s activity, it’s likely that the shares created on Friday, when the Japan ETF had $456 million of inflows and the Europe fund received $113 million in new capital, were for one investor, according to Josh Lukeman, head of ETF market making for the Americas at Credit Suisse.

“It’s not too uncommon for an issuer to design a product around an idea or request from a very large client,” he said.

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