Are ETFs really the next smartphones?

Investment in exchange-traded funds can no longer be "phoned in" especially when the products are viewed as a transcendent technology that will reshape the traditional fund landscape.

Using the analogy that smartphones have become less about calling people, J.P. Morgan Asset Management's head of international ETFs Bryon Lake said the investment vehicles have also evolved from original purposes and are challenging traditional investor mindsets.

Speaking to a group of international media in London, Lake said if the global ETF industry continued its growth trajectory it would reach US$30 trillion ($42 trillion) by 2030.

Driving this will be two major forces: a flood of new fixed income ETFs and the transporting of active strategies to the "ETF wrapper."

Further explaining his analogy, Lake said fixed income ETFs will soon look more and more like traditional funds - something which up until now has only been a thought bubble. It has similarities to how smartphones have become multi-dimensional in their use.

His example was the JPMorgan USD Ultra-Short Income ETF - the US-domiciled product has grown assets under management to US$2.5 billion ($3.5bn) in less than 18 months. In February, the asset manager launched its European version and it has grown 300% since inception to US$135 million ($189m).

He hinted this evolution is also driven by market demand. More than 56% of assets in mutual funds are in fixed income, but only 15% of ETF assets are in the asset class. More than 50% of the average European investor's portfolio is in fixed income, Lake added.

"The first ETF was a transcendent technology when it arrived in 1993, and it delivered passive investment in an amazing way. It was just scratching the surface for the potential of the ETF and there is so much more we can do," Lake said.

Speaking to the active ETF segment, Lake officially launched JPMAM's first active equity ESG UCITS ETFs. From next week they will trade on several European stock exchanges with a total expense ratio of 25 basis points.

During his half-hour presentation, Lake also busted myths such as the ETF industry being too big and that ETFs won't handle market corrections.

He said global ETF assets currently stand at about US$5 trillion ($7 trillion). This is the same combined market cap as the FAANG stocks, meaning the ETF industry is still relatively small.

The journalist is a guest of J.P. Morgan Asset Management in London.    

Read more: J.P. Morgan Asset ManagementBryon LakeFAANGJPMAMJPMorgan USD Ultra-Short Income ETF
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