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- [00:00]
Michael Batnik
Today's Animal Spirits Talking Book is brought to you by JP Morgan Asset Management. Check out jpmorgan.com powerofactive to learn more and make sure to check out their JP Morgan guide to ETFs, which comes out on a quarterly basis on their website. Remember that. JPMorgan.com PowerOfActive.
- [00:18]
Ben Carlson
Welcome to Animal Spirits, a show about markets, life and investing. Join Michael Batnik and Ben Carlson as they talk about what they're reading, writing and watching. All opinions expressed by Michael and Ben are solely their own opinion and do not reflect the opinion of Ritholtz Wealth Management. This podcast is for informational purposes only and should not be relied upon for any investment decisions. Clients of Ritholtz Wealth Management may maintain positions in the securities discussed in this podcast.
- [00:48]
Michael Batnik
Welcome to Animal Spirits with Michael and Ben. On today's show, we talk with John Mayer. He's the Chief ETF strategist at JP.
- [00:53]
John Mayer
Morgan Asset Management and also the lead singer of Solid can help it sell them concert ones.
- [00:59]
Michael Batnik
And then Cheyenne Hussain, who is the head of US Investment Specialist, Global Fixed Income, Currency and Commodity Group at JP Morgan Asset Management. And we got to talk about the guide to ETFs.
- [01:10]
John Mayer
You know, I'm a guide to aficionado. I don't know if you know this about me. It started back in the day. Well, I don't know if this is 100% accurate, but let's just go with it. It started with Dr. Kelly's guide to the Markets. They branched out. They do Guide to Retirement, right? Guide to alternatives, guide to ETFs, which.
- [01:30]
Michael Batnik
Is I think, the newest part of the lineup. So we go through that today. They have wonderful charts. It's, it's always a ton of stuff and it's always, there's always a good little tidbit or piece of information in some of their in these guides about like, oh, I've never thought about it that way or I've never seen that before. And there was a lot of that today that we talked to on the podcast.
- [01:46]
John Mayer
We spoke on the POD last week and we were talking Jeffrey Patak was engaged with us on Twitter. Jeffrey from Morningstar about like, where is all the money coming from? Because these numbers, like the fact that VO, the Vanguard S&P 500 Index Fund ETF is doubling the previous record flows. We had more inflows into ETFs this year than in the crazy times of 2021. And we're thinking like, all right, are these conversions? And you know the guys done today shows are probably that's, you know, probably, probably not. I mean, that's a small part of it. So what is it? It's just, is it a reflection of animal spirits, pun intended? Is it just these are just better structures And I think it's all the.
- [02:31]
Michael Batnik
Above, but it's a host of things.
- [02:35]
John Mayer
Yeah, I think maybe it is that a lot of these, a lot of these ETFs that are getting the biggest inflows, they're just, they're new products.
- [02:42]
Michael Batnik
So the one, the biggest one that surprised me that we actually didn't get to on the show was they show global ETF AUM over time. So there's roughly $10 trillion in the US there's more than 14 trillion globally. And they show going back to 2014 is how far the data goes back. It was like a little over $2 trillion in global ETF assets then. So it's gone from 2 trillion or 2 trillion? Yeah. To 14 trillion. It's like 20% CAGR compounded annual growth rate for those who don't know. And the growth rate has actually been bigger for the rest of the world than the US so in the rest of the world it's growing 26%. In the US it's grown 18%. They were coming from a smaller base, but that actually surprised me. So ETFs are not just a US based phenomenon, they're growing like gangbusters around the world as well.
- [03:21]
John Mayer
Yeah. So, all right, we got into a lot of it. Don't want to step up too much on the material. With no further ado, here's our conversation with John and Cheyenne. Gentlemen, welcome to the show.
- [03:34]
Cheyenne Hussain
Thank you for having us.
- [03:35]
Ben Carlson
Thank you.
- [03:36]
John Mayer
All right. Yesterday on Animal Spirits, Ben and I were talking about the record setting year of inflows that we're seeing in 2024. I think it's like $921 billion into ETFs and surpassing 2021's record. We're like, how, where is all this money coming from? And one of the areas that I'd be curious to, to get some insight on is how much of this is like mutual fund conversions from the likes of dimensional funds and others or is this, is that not part of the equation? Is this really like net new money? So I don't know who wants to take this first, but where is all this money coming from?
- [04:11]
Cheyenne Hussain
Yeah, I think I'll take a shot at this. This year it's been a record flows like you said, it's like almost a trillion dollars. It's amazing. And I don't think it's coming from conversions to mutual funds. Certainly some former mutual fund consumers are buying ETFs because of the benefits of the ETF structure. But I think that is really the answer is that the benefits of the ETF structure is really being made apparent. Liquidity, transparency, tax efficiency.
- [04:40]
John Mayer
But people are just discovering that like.
- [04:42]
Cheyenne Hussain
Well, I think there's a few things that are going on at play. First of all, the active story really is starting to resonate. So you have $10 trillion in assets in the U.S. 8% of those assets are in actively managed ETFs. But this year 30% of the flows have been active. So like, why is that? I believe the answer is two things. One, there's an acceptance by portfolio managers that it's okay to reveal your underlying portfolio.
- [05:14]
John Mayer
Nobody cares.
- [05:15]
Cheyenne Hussain
Like, good luck trying to replicate like a thousand different fixed income securities and an ETF like, go, go for it. If you can do that, great. That's one thing. The second is there were regulatory changes that occurred in 2019 that facilitated active managers getting into the space. That was step one. Step two is that you're now coming up the three and five year track record that enables many of the active managers to get on existing platforms, some of the large wirehouses. So I think that is really helping to accelerate the growth combined with the fact that you have these unique benefits of the ETF structure. So no, they're not just discovering the ETF structure, but there's a few other parallels or verticals at play.
- [06:00]
Michael Batnik
This is like a consolidation story. Maybe then because there's all these different funds that you have. You have closed end funds, you have mutual funds, you have all these different, maybe people in individual securities, I guess maybe some of the people that would have been stock picking in the past go, why, why am I going to pick a handful of stocks when I can just buy a basket in an etf? Is that, is it, is it a consolidation story?
- [06:19]
Cheyenne Hussain
So I think it's, there's two things at play. You know, one is there's, it's a realization story. And one that there's access to managers that weren't previously available, particularly on the active side. And once that some, some folks accepted that the ETF structure is more tax efficient, it's a better structure, now I can access these great managers using that structure. I think that is, that's accelerating the story.
- [06:46]
John Mayer
Cheyenne, do you think that this is reflective of investors appetite for risk or is that really not the story here? Is it just, listen, money is always coming into the market, bonds, stocks, and this is just a preferred vehicle. And maybe before you answer that, I'll give you a data point from, from our friend Todd. So, and over at Strategic, he shared a chart showing the cumulative mutual fund flows going back to 1984. And if you look at equities, I mean, I'm sure you've seen a chart like this. It's just rolling over. There's, there's a lot of money coming out of mutual funds. So is it, is it less of a reflection of investor appetite and more just where investors are allocating their money? So, like, are we going to see record flows every year?
- [07:22]
Ben Carlson
I think it's partly a reflection of both. Right. So you have portfolios that are generally maybe a bit more conservative, whether you think about the elections, uncertainty around the Fed and whatnot. And so you have risk taking coming back to the market. And I think the preferred vehicle of choice has been increasingly in the ETF wrapper. And it was a good point that Ben brought up in terms of the application of the ETF structure. When you look at fixed income in particular, it is pretty interesting where it's a highly diverse and segmented market which on a bond by bond basis can be really tough to transact. It's relatively liquid. So the ETF structure was revolutionary in the sense of providing liquidity to the fixed income market in a much easier way to transact in that market. The first kind of manifestation was in a passive sense. And now you're seeing the active piece pick up. And I think, Mike. Exactly. You noted there's an element of risk taking. So you look at the benchmarks in fixed income, there's not a lot of risk in those benchmarks outside of duration. Interest rate risk.
- [08:20]
Michael Batnik
Right.
- [08:20]
Ben Carlson
You don't have the level of credit risk maybe you'd want in today's environment if your expectation is around a soft landing. So it's pretty wild. I pulled up some stats, but you look at just within fixed income within ETFs this year, 34% have gone into active versus 15% last year. That that represents $93 billion year to date versus $33 billion last year just into active fixed income ETFs alone. So, Mike, to answer your question, I think it's a bit of both in terms of flows into the space, but then also the ETFs being a preferred rapper and you meet with different platforms, different RAs and advisors, it's an easier way to transact operationally, works out quite well. So I think there's a variety of factors, as John has noted, I want.
- [09:03]
Michael Batnik
To get into the fixed income side of things. But first, on your guide to ETFs, you have this chart in here on thematic ETF AUM. And this, this really surprised me looking at this. I've never seen it like this. So you have, you show this chart and it looks like a meme stock chart, basically. So in, in 2020, thematic ETFs had, I don't know, 25, 30 billion dollars under management. Then it shot up immediately to almost 130 billion. Now it's come down and basically leveled off. And even though there's more ETFs in the space, in terms of the numbers, the thematic A has declined and kind of sputtered, which is surprising to me because I would have assumed that more of the active money would have been going into these thematics. So what, what happened here? Was it just sort of a meme stock thing where people got really excited about these kind of plays and then they, then they gave up on them a little bit?
- [09:52]
John Mayer
Well, allow me to answer. I know you guys are interviewing, but that was, that was the Ark complex. That was, that was the five Ark products.
- [09:58]
Cheyenne Hussain
Well, not exclusively that. I think that started it. And then you saw a lot of issuers get into the thematic space. You saw a ton of new issuance in the thematic ETF space, whether it be robotics or you know, AI or EVs. And then Covid happened and there was just a huge appetite for risk. And then 2022 happened and then you saw a huge fall off in assets and thematics. Remembering Thematics are typically small and mid cap companies and they certainly got beaten up. And then the AI story, there was the intersection of the AI story and the thematics really just became AI and 10 stocks. And I think that really kind of changed the story of like am I going to go buy solar or Wind or a robotics etf? Or I'm like just buy something that has Nvidia, Microsoft and Google in it. And I think that's what happened.
- [10:52]
John Mayer
Balchunas tweeted yesterday, Voo watch. That's Vanguard's 500s and P500 ETF. He said, Voo is a day or two away from hitting $100 billion in year to day flows. And absolutely absurd feat. The old record is $50 billion set last year. So we doubled the old record into Vanguard's S&P 500 ETF. The most boring, obviously most liquid, like most traditional ETF. And then you have things like Nvidia's 2x levered ETF, which, which now has more assets. Todd's own tweeted, this now is more assets than ark, which is kind of wild. And then you've had everything in between. So you mentioned like a year like 2022. There's, there's innovation serving investors. So 2022 was a huge year for income oriented products. Obviously your Jeppy product was, was the kingmaker that year. And then there's been a lot of innovation in that space. There's been the Buffett etf. So I think you're right. Like Baltunas calls them the hot sauce ETFs. There's so many different flavors of active that are, that are really like having a moment right now.
- [11:51]
Cheyenne Hussain
Yeah, no, I think that's fair. And to your point about the S&P 500 ETFs doubling in assets, you know, you should be concerned there because what's driving performance in The S&P 500? It's 10 names, right? There is evidence the market breadth is widening out. As market breadth widens out, that's where you want an active manager. Sure, you're going to be still exposed to the beneficiaries of the AI story, but there's another 490 stocks that potentially have some opportunity. And, and when as implied correlations are decline and you have the opportunity with stocks moving in different directions to outperform, that's where the benefits of an active manager combined with active managers getting more into the ETF space from the mutual fund business. That's why you're seeing kind of these large flows into actively managed ETFs.
- [12:47]
Michael Batnik
You have a chart in here that shows all the key players in the active ETF space. And it's kind of interesting to me because it's not like the biggest mutual fund players are the biggest ones in the active ETF space. And so the top of the list is dfa. And then JP Morgan is second in first Trust and Avantis. And I think for people outside the investment industry would be kind of surprised by the names. How did JP Morgan build this? And what's the breakdown of assets here in terms of, I guess like stocks and bonds and active versus other types of funds?
- [13:18]
Cheyenne Hussain
Well, you know, I think that 2019 was really an inflection point. So first of all, JP Morgan has been involved in ETFs for the past decade or so. But you know, we have a deep bench of active managers and we've always been very successful in the mutual fund arena. Now, the regulatory changes in 2019 that allowed for custom in Kind basket, negotiated basket, additional tools to portfolio managers. That was kind of the realization moment that wow, this business is, is, is probably changing over time. And given that this structure and the benefits of the structure and given that 85% of the secondary trading occurs on the secondary market, which would allow portfolio managers to, to more efficiently manage their portfolio, gave us the insight into saying, well, this is where the, the, the market is heading because of the benefits, the improvements in the structure, the modernization of the structure. And so over time, you know, we've come out with different strategies that use our existing bench of, of active managers into this kind of more modern structure. And other players like you, you mentioned on this list have certainly saw that as well. But we are really leaning into it because that structure is just a better structure. And if you look at the capital gain story is always a story. So in 2023, about 100 of 3500 ETFs paid a capital gain, both active and passive. Not many mutual funds. 30% in 2023, much higher in previous years. So it all comes back to we're leaning into the better structure and the future. And I think that's what's happening.
- [15:06]
John Mayer
So you talk about the better structure. Active mutual funds have had outflows forever. Active ETFs. It just seems like the money is just pouring in every year. So you guys have a chart showing US ETFs and mutual fund net flows by year. And every year there's positive flows into ETFs. And we talk a lot about Joshua piece a long time ago called the relentless Bid, how advisors are allocating money. And it's just, it's, it's, it's just, there's no selling from advisors, the people that controlled most of the money. But like, is it possible to have net outflows out of ETFs? I guess I'm trying to figure out like is. Is where is the money coming from? Is it just people making money and investing it? Is it that simple?
- [15:47]
Cheyenne Hussain
First of all, there, there's a lot, there's a lot of money in money markets right now. There's about $7 trillion and there'd be, we believe that that cash should be allocated. I want to pass it over to Cheyenne to talk about it in terms of money being allocated from cash and why cash should be moved to fixed income, different parts on the duration spectrum. But one other point is it's a newer market in terms of ETFs. ETFs are yes, positive flows consistently since they've come out in 1993, we expect that to continue just because the dynamics and yes, money, there's new money being made, there's existing money market to be deployed, there is a transfer of wealth. So perhaps Cheyenne could opine on that.
- [16:31]
Ben Carlson
I mean, one perspective also to add to that, I mean think about what the Federal Reserve has done over the last decade, right? Injected tremendous amount of money into the financial system. So there's a lot of money that needs to be put to work in addition to the $7 trillion that are sitting in money market cash like instruments. So I think there is a strong bid there from a risk taking perspective that is driving these flows. So it's not totally, I don't think, dramatically surprising given how investor portfolios have been positioned, but then also just the amount of money that needs to be put to work is truly tremendous.
- [17:09]
Michael Batnik
You guys mentioned the active fixed income space. I think a lot of people don't realize that when you buy a total, it's really easy to replicate the stock market. A total stock market index fund effectively is. The total market maybe doesn't include some microcaps or pink sheets or whatever, but you can effectively get, you know, 99% of the stock market. When you buy a total bond market index fund, you're not, it's kind of harder to replicate that. The, the aggregate is essentially what people look at as the total bond market. But you have a great chart in one of your white papers that shows it says nearly half of the U.S. bond market is not represented in the Bloomberg U.S. aggregate index. So no munis, no high yield, very little asset backed agency. So it doesn't necessarily cover the whole market, which is I guess because the fixed income market is just a lot bigger. So maybe talk about how that fits into the idea of using active management in fixed income.
- [18:00]
Ben Carlson
Yeah, happy to talk to that. So exactly. Then as you mentioned, the AG index, which is the broad representation of the US bond market, only representing roughly half the market, which is an interesting thing to think about. And that index was conceived in the early 80s. Right. And so back then, the most, the most represented and liquid tradable areas, it's really Treasuries, agency mortgages and investment grade credit. So those are the three major components and roughly a third, a third, a third that are represented in the aggregate index. You look at the broad market you mentioned, kind of asset backed. I mean securitized credit alone is roughly a $3 trillion market. That's roughly 10% of that is represented in the Ag Index. High yield, not represented at all.
- [18:46]
Michael Batnik
Sorry. To interrupt you.
- [18:48]
Ben Carlson
Go ahead.
- [18:48]
Michael Batnik
So one of the reasons that a lot of these areas aren't in it is because they're newer, faster growing segments of the fixed income market and the index just never really adjusted.
- [18:56]
Ben Carlson
So it's two things. Yes, so it's the rules that have been put in place at inception, but then also particularly within securitize, you've had more issuance in 144A security. So these are more private placement securities as opposed to going through broad broadly syndicated deals. And so 144 a process doesn't mean it's lower quality. It just means it's issued via private placement. A lot more issuance has taken place insecuritized via that process. So that's not inherently not included in the benchmark. It's a rule that's included in the AG index. So that's effectively why that whole segment of the market, a large proportion of that market is excluded. But yes, Ben, to answer your question, what was a broad representation of the market at that time is not a true reflection of the market as it stands at the moment. I mean look at the size of the global fixed income market. I mean just to put in perspective, it's $141 trillion in size. You have 3 million unique securities that are included in the global fixed income market. Right. You compare that to the equity market, $115 trillion in size, 9,000 securities. There is a lot of opportunity within fixed income from an active perspective and it's tough for a benchmark to do to give full representation. And cintran, it's not just the ag but you look at the front end of the curve. There aren't great indices to position in the front end the curve either. What's your best approach or best reflection in the front end. It's really the one to three year gov credit index. So half government, half credit, not fully representative of the bond market and opportunity that you can glean in the front end of the curve. So it's the structures that were put in place at inception of these benchmarks that are reflective. And you have an index like the universal, for example the aggregate universal. But even then you have marginal increase to high yield, marginal increase to emerging market debt. It's still very disproportionately skewed towards duration risk as opposed to credit risk.
- [20:52]
John Mayer
You guys have a killer chart showing Treasury ETF flows since the Fed's first rate increase. And what jumps out to me are long treasuries and people were Talking about this TLT in 2022, as these bonds got killed, you saw investors run into a burning building. And that never ever happens. There's no other scenario where investors run into a fire and they've continued to do so. It really stands out. If you look at like. So you plot long treasury intermediate, short, ultra short, and this is the, this is the head scratcher. What do you think is going on here?
- [21:29]
Ben Carlson
I think one thing to think about within things like TLT or LQD, I mean, these ETFs have grown into just as much financial instruments as they are investment vehicles. And the inherent investor base is not only retail but also institutional in nature. And so you have a lot of motivations that are maybe not purely economic in the sense of maybe liability driven investing, for example. So I think you have a variety of investors in the space that are not investing on a pure kind of on an isolated basis, just looking at tlt, but looking at maybe matching liabilities, matching risk within a portfolio. So that's one thing I would point to is the increasing or the large representation of institutional investors which use these ETFs as financial instruments. But John, would you add anything to that?
- [22:17]
Cheyenne Hussain
Yeah, I mean, that's on point. So if you look at some of the larger ETFs like TLT or SPY, they do have, they're used for various different reasons. They're not just retail going into gain exposure to long duration necessarily. And if you could identify the holding period for some of these, you would probably see that the holding period is rather short. So while long Treasuries of late have not done well, they're being used for different reasons by different consumers.
- [22:45]
Michael Batnik
So back to the active fixed income thing. You guys have a great chart here that shows that most active fixed income managers actually outperform, which is the opposite of the equity space usually. Right. It's. Equity managers have a very hard time outperforming, especially the past 10 years or so where the biggest stocks have been the biggest winners. And so that's hard. But in the fixed income space, you see more outperformance. I don't have the exact numbers, but you kind of show a breakdown here. My question to you is, is that outperformance skill or is it taking more risk because you're going out on the credit spectrum? And maybe it doesn't matter because you know, again, a lot of these benchmarks don't have all that. But how much of it is just taking different credit risks? And does that really matter?
- [23:25]
Ben Carlson
Yeah, it's interesting in the bond market, I Don't think it's necessarily a reflection of taking more risk. I think it's being thoughtful with your risk and potentially looking both in active plays within the index and even moving outside the index. So for example, one point I would bring up is the index itself, due to its construction, is an index of adverse selection, as we'd say in the bond market, where the index is going to be more geared to and have exposure to those borrowers that are more indebted, which is kind of counterintuitive in nature. So you can actually as an active manager, mitigate some of that risk. Where, for example, investment grade credit, where there's a larger proportion in triple B, you can manage those risks from an active perspective and also take positioning within the IG credit market. So for example, you know, year to date we've done quite well overweighting financials, which have actually obviously done quite well post, you know, the, the election. The other thing to note, within agency mortgages, for example, just given issuance and mortgages, right. What's the nature of mortgages in the index? So this, this is the second most liquid asset class behind, you know, U.S. treasury debt. They're predominantly lower coupon mortgages. So you look at 2022, where rates moved higher, those mortgages on average lost 13% versus higher coupon mortgages lost roughly 7 to 8%. So for an active manager, it's not about taking on more risk. I can make the decision to say I don't want to own those lower coupon mortgages. I'm going to replace that with higher coupon mortgages. And I can manage for that what they call negative convexity, that risk that mortgages introduce as rates move higher. But then, Ben, you're absolutely right where you can move outside the constraints of the benchmark. So as I mentioned, you know, securitized credit is roughly $3 trillion market. So that doesn't necessarily mean taking on more risk where you can sit in higher portions of capital structure, single A rated or higher, where you're getting very strong levels of collateralization, that is protection against credit risk and you're getting paid a healthy spread on top of investment grade corporate credit. So there's a lot of opportunities within fixed income that I wouldn't argue are necessarily about taking on more risk, but actually expanding the toolkit where you can look to other either actively manage within the benchmark constraints or look outside the benchmark for higher quality areas of the market that can give you a better return and yield relative to what's represented index, a good Way to think about it is where index is most heavily trafficked by the benchmarks, by those passive investors. Of course those areas are going to get bit up, spreads are going to get tighter. Those areas that are not represented in the benchmark can actually introduce or provide some nice spreads, some nice liquidity risk on top of what you're getting in the benchmark. So I think there's a broad opportunity set. It doesn't mean take on more risk.
- [26:19]
John Mayer
When you look at your slide, the top 10 industry leaders, you break it down by overall ETF leaders by flows, and then also active ETF leaders by flows. And to your point about bonds being such an area of demand from end clients, $82 billion in inflows, which is ahead of U.S. equity, it's number one, it's head of everything I'm curious to like. So a lot of these bonds has been mentioned like they don't trade ever. And so investors are, are finding liquidity. And a better wrapper for this is the liquidity that's coming from ETFs influencing or making it easier for the underlying bonds to trade.
- [26:52]
Cheyenne Hussain
First of all, I think any secondary ETF activity is additive from a liquidity perspective. You know, we've seen in the past where liquidity mismatches arise and market makers are actually able to utilize the ETF for the price discovery to manage risk exposure during periods of market stress. One that comes to mind is Covid, the Fed purchased high yield ETFs, investment rate corporate ETFs because the underlying market wasn't trading and the ETF vehicle became the price discovery mechanism and became the new bid for the underlying components.
- [27:30]
Michael Batnik
I forgot about that. That really made a lot of people mad when they did that.
- [27:32]
John Mayer
Yeah, it did.
- [27:34]
Cheyenne Hussain
Yeah. But it gave a price to the bonds and helped move the market. It was $9 billion small by comparison on what was going on at the time. But it certainly helped get the market going. It's also an advantage for the PMs because under normal conditions it helps promote tighter spreads for the end investor. So I think there's a lot of positives that the ETF structure adds to the underlying bond market, particularly those parts of the bond market that are less liquid, like high yield, like investment grade corporate.
- [28:09]
John Mayer
This is sort of neither here nor there, but you guys have a slide on here talking about what themes are. And it says US technology, rate of adoption and it shows the first year that it was commercially available. Whose idea was it to put flush toilet on here?
- [28:26]
Michael Batnik
That's a huge innovation, Michael.
- [28:30]
John Mayer
So Anyway, yes, it took a while to adopt guys.
- [28:33]
Michael Batnik
It's true.
- [28:34]
Cheyenne Hussain
It's pretty wild. Like some of these different technologies took to quite some time. Electricity took like 80 years. I'm not sure if I have electricity. I do have electricity on there.
- [28:44]
John Mayer
So one area that's. I don't know if it's getting adoption but it's certainly getting some buzz and will probably roll out at some point next year are private investments really, really illiquid securities going inside a liquid wrapper. I am not sure how I feel about this, but I'm not the expert here. We'd love to get your guys take.
- [29:02]
Ben Carlson
What I would say. I think, you know, the last 20 years I think have proven out that fixed income can live in the ETF wrapper where there was a lot of questions around that. And to your point, Mike, what we found, you know, in various points of volume, that fixing that the wrapper can be additive from a liquidity perspective. Right. And the next evolution is the move towards active. Right. And using that wrapper for fixed income in an active sense. And that's what's getting proved at the moment. The next frontier. Yeah. Is probably, you know, inclusion of some type of private credit. But that's a tough proposition. Right. In the sense of, you know, providing liquidity at a time when liquidity is needed and given the liquidity profile, the wrapper as a whole. I think there's a lot to be determined there and obviously the SEC plays a large role there, you know, the AP obviously and its relationship, you know, is important. I don't know how that works necessarily. So if anything I would place more question marks. Yeah.
- [29:59]
John Mayer
For compliance wise. But I'll just say that it's going to be hilarious when you see some of These private credit ETFs down 25% and the, the actual private credit stuff is flat.
- [30:08]
Cheyenne Hussain
I think they're going to start slow and it'll be. I think the prospectus is 0 to 15%.
- [30:14]
John Mayer
Yes.
- [30:14]
Cheyenne Hussain
I'm sure it'll be in single digits for quite some time to get until there's a understanding of the market or going through some periods of market stress to see what happens.
- [30:24]
Michael Batnik
The other big growth area in recent years is just the use of derivatives and we. Michael talked about Jeppy, is it still the largest active etf?
- [30:31]
Cheyenne Hussain
Yes, it is.
- [30:33]
Michael Batnik
Does that make sense that we'll see more options strategies available? Because that's as far as I know, something that's relatively new as well.
- [30:40]
Cheyenne Hussain
Well, success breeds success, so there's always followers when certain strategies are Doing well. I think it's likely you'll see different types of derivative products, whether it be covered calls or buffered ETFs. You also have to think about kind of the changing demographics and kind of the need for high income. And once you get used to and the understanding of these types of products, they're very appealing in terms of, you know, you're giving up some, some upside for getting that higher distribution rate somewhat cushioned on the downside to the extent the option premium received. So typically you don't see outflows in these products or we have not experienced them yet. So it's fair to say you're going.
- [31:24]
John Mayer
To see more the demographic tailwind for this for these are strong guys. How often, how often are you putting out these guide to the ETFs?
- [31:30]
Cheyenne Hussain
I joined JP Morgan just a little under a year ago. We just launched our second edition of the guide ttfs and it's going to be launched on a quarterly basis and just kind of a little plug for the product or the educational component. It's really to kind of provide insights about the ETF marketplace. As the ETF marketplace becomes the dominant structure, the go to structure, we at JP Morgan just felt like there was a need and a demand for more education and if you, as you know, as you look through it, it's product agnostic just like our guide to markets, our guide to Alton Guide to Retirement. It's designed to help everybody understand the ETF market. So that's the goal.
- [32:12]
Michael Batnik
As a builder of charts, I have a lot of respect for the charts that you guys create. It's very, it's very kind in the eyes and it's very. Yeah, it's very useful to people like us in the industry for sure.
- [32:21]
Cheyenne Hussain
Yeah. Every quarter we'll get you get a new one. We just came out the Last version on the 12th of November.
- [32:27]
John Mayer
All right, so this is primarily a tool for financial advisors. I know we get a lot out of it. How do people find it? Where do we send them?
- [32:35]
Cheyenne Hussain
You could get it on the JP Morgan website. You can, you can download the Insights app. I know I'm not supposed to say this, but you can also just Google Guide to etfs.
- [32:44]
John Mayer
All right, well we will help.
- [32:45]
Michael Batnik
Usually do. Yeah.
- [32:46]
John Mayer
Well, we'll put a link in the show notes for listeners. So John and Cheyenne really appreciate the time today. Thank you for coming on.
- [32:52]
Ben Carlson
Thanks for having us.
- [32:53]
Cheyenne Hussain
Great being here.
- [32:55]
Michael Batnik
Okay, thank you to John and Cheyenne. Remember, check out jpmorgan.com powerofactive to learn more. Also look for that JP Morgan guide to ETFs, which is great. Email us anal spirits compoundnews.com.
- [33:09]
John Mayer
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