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JPMorgan to initiate $9 trillion mutual fund-to-ETF switch

(Bloomberg) — JPMorgan Asset Management will convert $1.1 trillion of fixed-income mutual funds into ETFs on Friday, joining a growing Wall Street trend expected to turn $1 trillion.

According to a notice on the fund’s website, the JPMorgan Inflation Managed Bond Fund (ticker JIMAX) is becoming the JPMorgan Inflation Managed Bond ETF (JCPI) after the closure. It is the first of four planned conversions by the firm that will move nearly $9 billion in assets to an exchange-traded fund by mid-June.

Just a year after the first formal conversion between the two investment structures took place, many issuers have now made the move as investors generally favor lower-cost, more tax-efficient ETFs.

Data from the Investment Company Institute shows that more than $160 billion has gone out of mutual funds so far in 2022, as ETFs have put in more than $200 billion.

“While conversions in general will continue to accelerate, they are proving to be an interesting opportunity for entrants,” said Jill Delsignor, managing director of FLX Networks. “Coming to market with a track record and assets is incredibly important.”

Bloomberg Intelligence estimates that $1 trillion from mutual funds could eventually be converted into ETFs.

While this would be a huge boost for the $7 trillion U.S. ETF market, it accounts for about 5% of the mutual fund world. The challenge for most funds is that switching is complicated and not suitable for every product. Meanwhile, the US pension system is geared heavily toward the more established vehicle.

The biggest conversion to date has come from quant giant Dimensional Fund Advisors, which in June last year stood at about $29 billion. Other switchers include Motley Fool Asset Management, which finalized a nearly $1 billion move in December. Franklin Templeton plans to join the Conversion Club later in 2022.

As more of them switch, asset managers will face some “potentially eye-opening” moments if the strategies fail to attract more cash, Delsignor believes.

“ETF Rapper is an amazing one, but it ain’t magic,” she said.

JCPI will have an expense ratio of 0.25%, which will be cheaper than the charges on various share classes of mutual funds. According to data compiled by Bloomberg, the conversion would raise JPMorgan’s US ETF’s stable to 41.

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