JPMorgan gains ground as BlackRock's grip on ETF market loosens

A stellar year for JPMorgan Asset Management is proving to be an unusually tepid one for the world's largest asset manager BlackRock, shaking up the leaderboard in the $7.6 trillion U.S. exchange-traded fund industry. 

JPMorgan has raked in nearly $24 billion across its 56 U.S. funds so far this year, which accounts for 9% of overall ETF flows in 2023, according to data compiled by Bloomberg Intelligence. That's on pace to be a record haul for the bank's ETF lineup and its highest share ever.

Meanwhile, BlackRock — the largest ETF issuer — has attracted $39 billion across its 408 ETFs so far this year. That works out to 15% of the industry's $263 billion year-to-date inflows, on track to be BlackRock's lowest share since 1999. 

While BlackRock's $2.5 trillion U.S. franchise still dwarfs everyone except for Vanguard Group in the ETF industry, JPMorgan is one of several asset managers challenging that duopoly on inflows. That's largely because investors have been increasingly seeking actively managed strategies as the Federal Reserve undertook its most aggressive tightening campaign in decades. 

The demand for such strategies has been a boon for the likes of the $29 billion JPMorgan Equity Premium Income ETF (ticker JEPI), which beat out the $24 billion JPMorgan Ultra-Short Income ETF (JPST) this year as the largest active fund. 

"JPMorgan has built a franchise out of JPST and JEPI — and for good reasons, they're both big winners with advisers making real allocations, not chasing the hot dot," said Dave Nadig, financial futurist at data provider VettaFi. "BlackRock will, of course, be a near default solution for many people's core beta exposure, but we're in a big pendulum swing — particularly in bonds, but increasingly in equities — where active has caught a bid."

Active inflows
Actively managed ETFs have absorbed about 23% of the total inflows that ETFs garnered so far this year. That's a record share, even though these products make up just 6% of total ETF assets. The demand has spurred an arms race of sorts to stake out space on top of the active leaderboard — a spot currently occupied by Dimensional Fund Advisors, which manages nearly $99 billion across its 31 active ETFs. 

JEPI has benefited the most from the deluge of fresh money. After breaking the Ark Innovation ETF (ARKK)'s annual record for active ETF inflows with a nearly $13 billion haul last year, JEPI has attracted another $10.6 billion so far in 2023.

That has spawned a number of copycat filings from issuers including Goldman Sachs and REX Shares in recent months, even though JEPI's strategy of tracking low-volatility stocks and selling call options has underperformed the S&P 500 this year as big-tech stocks propelled the index higher. 

By contrast, just 24 of BlackRock's 408 U.S.-listed ETFs are actively managed, according to data compiled by Bloomberg Intelligence. While that put a damper on flows so far this year, the artificial intelligence-fueled euphoria that's swept up technology stocks and powered stock benchmarks higher has directed money back into BlackRock's largely passive lineup in recent weeks. In the past month alone, investors have poured more than $16 billion into BlackRock ETFs.

Salim Ramji, global head of iShares and index investments, expects that momentum to build in the second half of the year. 

"We have within iShares a very seasonally oriented business. We tend to do much slower business in the first quarter and a lot of our business in the fourth quarter," Ramji said on Bloomberg Television's ETF IQ this month. "When you look at the seasonality of it, a lot of financial advisers do their year-end tax planning, do their year-end portfolio rebalancing and they trade out of things at the beginning of the year, and this year is no different than other years."

Drop off
The recent resurgence has helped BlackRock pull safely ahead of JPMorgan — in early July, the bank commanded 10.7% of total ETF flows versus BlackRock's roughly 11% share. Still, 2023 has seen a dramatic drop-off in flows for BlackRock.

While $39 billion is good enough for second-place to Vanguard's $75 billion year-to-date total, that follows inflows of nearly $170 billion last year and $208 billion in 2021, according to data compiled by Bloomberg Intelligence. 

It's a microcosm of an industrywide drop. While some firms are seeing record inflows, U.S.-listed ETFs have attracted a muted $263 billion so far in 2023. That pales in comparison to last year's $582 billion and a record $880 billion in 2021. 

It's possible that JPMorgan could still displace BlackRock for the number two slot should volatility return and sour appetite for risk, according to Deborah Fuhr of ETFGI. However, given the sheer size and breadth of BlackRock's stable, it would likely be short-lived. 

"Covered-call ETFs offered by JPMorgan have proven to be very popular this year, and are driving their strong net inflows," said Fuhr, founder of the London-based research firm. "Depending on how the market performs over the course of the year, these products might put JPMorgan ahead of iShares for a period of time, but it's not likely."