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Rising returns and investors chasing returns have created opportunities for actively managed exchange-traded funds to take hold, including with mind-blowing monthly payouts. The JPMorgan Premium Equity (JEPI) ETF has a 12-month trailing dividend yield of over 11%, and its 30-day SEC yield was just below that as of late February. This helped make it one of the most popular ETFs of the year, with over $4 billion in inflows, according to FactSet. The fund’s success is partly due to the derivatives strategy, as JEPI sells call options on the broader market, which generate income in exchange for less upside potential. When markets turn sideways or fall and interest rates rise, the strategy can outperform the market average for both stocks and some forms of bonds, as JEPI did in 2022. “The market environment has been such that investors are looking for income without duration … JEPI, which has basically zero duration but still has the ability to generate this income, was a really interesting replacement for bonds,” said Brion Lake, global head of ETF solutions at JPMorgan Asset Management. But part of the fund’s equity portfolio also differs from some of the largest ETFs on the market because it is actively managed. The rise in JEPI shows how active funds can stand out from their passive counterparts despite the poor historical performance of active stock pickers relative to the market. ETFs have traditionally and predominantly been a passive investment vehicle. The largest funds in the market track indices like the S&P 500 and give investors market returns minus fees. But 2022 has been a surprisingly strong year for active managers, and active ETFs have seen their share increase relative to their passive counterparts. Funds such as JEPI, with clear differences and goals from traditional passive funds, can be attractive to investors. “The result is useful, and the fact that JEPI has monthly distributions and people can look it up in their preference database and see what those distributions were like is a really powerful thing,” Lake said. He added that the fund is now three years old, giving investors and financial advisors a longer track record they can trust. Of course, active strategies also benefit fund managers in the form of higher fees. The JEPI expense ratio of 0.35% is much higher than many S&P 500 index funds, and some other active ETFs charge more than twice as much as JEPI. And strategies like JEPI, which offer extra income or downside protection, may be less effective during bull markets when stocks are rising. Active assets could be used in other areas, Lake said. Besides derivatives-based products, two other areas where active strategies could make sense are fixed income and international investment. The JPMorgan Ultra-Short Income ETF (JPST) has also been popular this year with $1 billion inflows and 30-day SEC returns above 4%. Among smaller active fixed income funds, the Core Plus Bond ETF (JCPB) has a similar return, while the Income ETF (JPIE) has a return of over 6%. “Where I think the penny fell on the ETF-wrapped asset, I don’t think it’s fully manifested on the fixed income side,” Lake said. In terms of equities, the International Research Enhanced Equity ETF (JIRE) was also popular this year, with $280 million in inflows and a total return of 7%. The firm is also entering the world of “translucent” ETFs, which publish proxy portfolios of their assets instead of a daily list and serve as a bet on a manager’s stock pick strategy. JPMorgan launched its first fund in this category on Wednesday.
Credit: www.cnbc.com /
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