Fixed-income ETFs are helping pension schemes tailor their fixed income exposure. Bryon Lake, Head of International ETFs at J.P. Morgan Asset Management, explains how.
You've been quick to develop a range of fixed-income ETFs. In what ways are fixed income ETFs attractive to pension schemes?
The flexibility, diversification and the potential for tight spreads that fixed income ETFs provide are the main reasons we're seeing pension schemes adopt them. You get the benefits of the wrapper, which give you the look and feel of an individual security like a stock, but equally you can get fixed income exposure through it as well.
They are rapidly being adopted by investors and pension schemes because they appreciate the transparency the ETF wrapper provides. It allows them to precisely define what types of exposure they're getting, because pension schemes tend to be big asset allocators and they have a top-down perspective. The more precise and transparent the strategy is, the more accurately they can reflect and execute their vision of the market.
Why would a scheme choose J.P. Morgan ETFs; what are the benefits to a pension fund's portfolio?
Delivering J.P. Morgan's expertise through the ETF wrapper provides added value for our clients, whereas most of our competitors tend to licence indexes in order to deliver exposure to the wrapper. We're already quite differentiated via our own proprietary strategies so that's a benefit pension schemes receive when working with us.
Another benefit is the manager access we provide: our investment professionals are on hand to ensure schemes understand exactly what they are investing in. As a business, we see this as a fiduciary responsibility.
It's also part of our broader strategy. For example, when we launched our emerging market bond ETF based on an index, it was designed with the wrapper in mind. Pension funds are aware of the risks associated with emerging market bonds; so to see the exposure and the capabilities we have has been a differentiating factor. Ultimately, our move into this space means that our clients can access cost effective ETFs and at the same time receive the value-added service you would expect from a large asset manager.
Whether it's our thorough research, the technology that drives this, the robustness of our platform or the capabilities of the people that we have, we think schemes benefit from this all-in-one package.
Click here to learn more about J.P. Morgan Asset Management's fixed-income ETFs