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1) J.P. Morgan Asset Management Proposes Conversion of Select Mutual Funds to ETFs

PR Newswire  |  8/11/2021

Because… If approved by the boards of the funds, JPM’s conversion of four mutual funds into ETFs, which amounts to almost $10 billion, will be the second largest. DFA converted four mutual funds into ETFs in June with total assets of nearly $30 billion. Among four DFA funds, assets of US Small Cap ETF and US Targeted Value ETF remained at $3.9 billion and $5.9 billion, respectively, as of August 18, 2021. Meanwhile, assets of US Core Equity 2 ETF increased to $13.6 billion from $13 billion at the time of the conversion, and assets of US Equity ETF rose from $5.4 billion to $5.7 billion since the conversion. Because a fund’s asset growth consists of market value appreciation and net inflows, it is too early to tell if the conversion has helped DFA gather new assets. Bloomberg Intelligence estimates more than $1 trillion worth of mutual fund assets could be converted into ETFs in the coming decade. We expect more asset managers to follow suit and bring their existing mutual funds into the ETF world.

2) Here’s More Evidence that Factor Investing Works in Fixed Income

Institutional Investor  |  8/18/2021

Because… Smart beta (also known as factor-based) strategies are less widely used in fixed income than in equities. As of June 2021, 54 fixed-income smart beta ETFs had assets of $16.4 billion, compared with $1.3 trillion in 641 equity smart beta ETFs. The largest equity smart beta ETF had assets of $81.7 billion, whereas the largest fixed-income smart beta ETF had only $2.8 billion of assets, according to Morningstar’s classification. While the market for smart beta bond ETFs could expand in the future, most ETF providers are more interested in launching actively managed bond ETFs than smart beta bond ETFs. There were 163 actively managed fixed-income ETFs (including 136 in Taxable Bond and 27 in Municipal Bond) at the end of June, with combined assets of $128.6 billion, far more than assets in smart beta bond ETFs. Active fixed-income ETFs garnered $20.7 billion in 1H21 and $28.7 billion throughout 2020, compared to flows of $2.0 billion and $1.2 billion into smart beta fixed-income ETFs in the two respective periods.

3) Goldman Sachs to Acquire NN Investment Partners

Goldman Sachs  |  8/19/2021

Because… According to the press release, “NN Investment Partners is a top-ranked ESG manager in Europe and 75% of its assets under supervision are ESG integrated.” NN Investment Partners’ ESG expertise is likely very appealing to Goldman Sachs in this transaction. On a related note, Federated announced its acquisition of the remaining 29.5% interest in Hermes held by BT Pension Scheme after taking a 60% majority stake in 2018. Hermes EOS (Equity Ownership Services) boasts one of the world’s largest stewardship teams with an emphasis on responsibility, sustainability, and effective engagement. Clearly, the ESG focus has become a critical component of M&A deals. Morningstar’s 1Q21 report shows that close to 24% of the ESG mutual funds and ETFs domiciled in Europe classified themselves as sustainable under the EU’s new ESG rules, representing combined assets of approximately $2.61 trillion. Over half of net inflows in Europe in 1Q21 went into sustainable funds, marking the second time sustainable funds pulled in more cash in a quarter than conventional funds.