Active ETFs are reshaping portfolio construction: J.P. Morgan

J.P. Morgan Asset Management (JPMAM) told advisers active exchange traded funds (ETFs) are creating new opportunities to build more flexible portfolios, as demand for active strategies accelerates globally.

Speaking at the Advisers Big Day Out in Wollongong, JPMAM ETF specialist Stefania Vivarini said advisers now have access to a much broader range of investment solutions than was possible when ETFs were primarily passive equity vehicles.

"The rise of active ETFs is of course another structural trend in this market," Vivarini said.

She said almost 40% of ETF flows this year had gone into active strategies, driven by product innovation and the ability to package more sophisticated portfolio solutions within an ETF structure.

"Now you've got so many vehicles available to you globally, you really have the ability to construct your portfolios as you wish within the ETF ecosystem," she said.

Vivarini said active fixed income ETFs were emerging as a particular important portfolio tool, giving advisers access to a much wider investment universe than traditional passive bond strategies.

"The active bond space... provides the market itself with some really good liquidity and price discovery, especially in times of volatility and perhaps stress," she said.

Vivarini also highlighted growing demand for income focused ETF strategies, particularly as advisers prepare for the gradual phase-out of bank hybrids over the coming years.

She said derivative income strategies offered investors the potential to combine liquidity with attractive income streams, while remaining invested in listed markets.

"What we've done is take these tow challenges and put them into an ETF... to deliver a high yielding but still very liquid portfolio," she said.

JPMAM currently offers 14 active ETFs in Australia spanning global equities and fixed income, with an Australian equity ETF set to launch shortly.

Vivarini said the firm's broader investment philosophy remained centred on active research, noting the manager invests more than US$525 million annually into global investment research.

"We're an active house, we believe fundamentally in active research, and our product offer is informed by a really deep and thorough research function," she said.