Recent actions of a few large and respected US banks like J.P. Morgan and Goldman Sachs indicate that they expect asset management fees to fall significantly in future as markets and investors mature further. Both banks seem to be betting that exchange traded funds (ETFs) and similar simpler and cheaper solutions will grow at the cost of traditional higher-cost asset management.
This month, J.P. Morgan announced a minority stake in Global X, a young ETF provider known for its targeted country and market segment offerings. “Widely acknowledged for its innovative products, Global X has become a leading provider of ETF solutions, and we are pleased to have them as a strategic partner,” Robert Deutsch, Global Head of ETF Solutions for J.P. Morgan Asset Management, said. “This investment complements the growth of J.P. Morgan’s own ETF line-up, with seven strategic beta ETFs launched and many more to come.”
Previously both banks launched their own suite of ‘smart-beta’ ETFs – stock exchange-listed, open-ended mutual funds (with some restrictions) that track non-traditional (or smart-beta) indexes. In 2013 and 2014, both banks invested in start-up, Motif, an investment service where customers can buy ready-made equity portfolios in their own brokerage accounts, eliminating fees and expenses associated with fund ownership.
Further confirmation of this trend comes from the recent Janus Capital Group’s acquisition of exchange traded note (ETN) sponsor VelocityShares and Oppenheimer’s acquisition of VTL Associates that manages RevenuShares ETFs.