JP Morgan Asset Management has converted a $1.1 billion mutual fund providing inflation-managed core fixed income exposure to an ETF.
JP Morgan will convert a further three mutual funds worth $8bn to ETFs by mid-June.
The JPMorgan Inflation Managed Bond ETF (JCPI US) has been listed on Cboe BZX Exchange.
The ETF provides diversified exposure to multiple USD bond sectors globally while periodically hedging inflationary risks by entering into inflation swaps.
According to JP Morgan, the fund may serve as a complement to traditional fixed income by offering positive return potential in a rising interest rate and inflationary environment.
The strategy is timely with the US Labor Department recently announcing that consumer inflation in the US surged to a four-decade high of 8.5% in March compared to the same month in 2021, driven by skyrocketing energy and food costs.
The ETF’s day-to-day operations are overseen by portfolio managers Scott Grimshaw, Steven Lear, and David Rooney who collectively bring 90 years of industry experience including 58 years at JP Morgan.
The fund’s eligible universe mirrors that of the widely followed Bloomberg US Aggregate Bond Index which consists of US dollar-denominated, investment-grade securities from government, corporate, and securitized issuers globally. Up to 10% of the ETF’s assets may be allocated to bonds rated high yield.
The portfolio construction process utilizes top-down analysis to determine sector, credit, and maturity positioning. The managers then harness fundamental, bottom-up research provided by dedicated JP Morgan analyst teams to seek out undervalued issues. ESG factors will also be considered when making portfolio selections.
The managers regularly seek to hedge the portfolio’s overall inflation exposure by entering into pay-fixed inflation swaps – an agreement whereby JP Morgan pays a counterparty a fixed-rate cash flow based on a notional principal amount and receives a floating rate linked to the Consumer Price Index in return.
The ETF comes with an expense ratio of 0.25%, ten basis points cheaper than the lowest fees charged by the cheapest share class of the mutual fund.
JP Morgan has announced plans to convert another three mutual funds, collectively housing around $8bn in assets, to ETFs by mid-June.
The conversions highlight a growing trend amongst large asset managers to repurpose popular mutual fund strategies into the more tax-efficient, typically lower-cost ETF vehicle.