ETF Weekender: JPMorgan’s $10 Billion Switch and Cathie Wood on China

(Bloomberg) — Welcome to the ETF Weekender, your round-up of the biggest and most interesting stories from one of the hottest corners of Wall Street.

In the week when Wall Street really started to fret over the delta variant before sending the S&P 500 to yet more records: JPMorgan said it will convert mutual funds with $10 billion into ETFs, the race for a U.S. Bitcoin fund accelerated despite questions over demand, and Cathie Wood hinted she hasn’t completely given up on Chinese stocks.

These are the stories you need to read.

Mutual Destruction

What happened: JPMorgan Asset Management announced it will convert four mutual funds with $10 billion of assets into ETFs.

Why it matters: The prevailing trend in asset management for a decade has been a shift to ETFs from mutual funds, but until recently, no U.S. mutual fund had ever been formally converted. A tiny issuer finally crossed the Rubicon in March, and was followed by the $660 billion quant giant Dimensional a couple of months later. The move by JPAM — a money manager more than four-times bigger than Dimensional — is a signal that there’s much more to come.

What’s in our story: Claire Ballentine was first to report the plans.

Read it here.

Apply and Demand

What happened: Issuers continue to race for approval to launch a Bitcoin ETF, with applications piling up even as investor demand for related products fades away.

Why it matters: The accepted wisdom of Wall Street is that the first issuer to get permission for a crypto ETF in the U.S. will make a lot of money, very fast — that’s why there are over 20 applications currently clogging the SEC in-tray. But if the volatile crypto market took another leg down, these firms might discover that investor demand has eased during their long wait for the green light.

What’s in our story: Katie Greifeld explains the disconnect between (attempted) supply and waning demand.

Read it here.

Cathie’s ‘Open Mind’

What happened: Cathie Wood and Ark Investment Management aren’t completely done with China, the star fund manager has revealed.

Why it matters: Wood caused a stir last month during Ark’s regular webinar when she was asked about its funds ditching Chinese stocks. She said there was a “valuation reset” underway, and that the shares would likely remain down. Her softening tone will be seen as a potential green light by her faithful followers to dip a toe back into turbulent Chinese markets.

What’s in our story: Elaine Chen reports on the latest twist at one of Wall Street’s hottest money managers.

Read it here.

Weekend Reading

Ex-Barclays Quant Wants to Clean Up the $11 Trillion Index Boom. BlackRock Quant ETF Surges With Momentum After Painful Rebalance. Shipping ETF Up 267% in Commodity Boom Struggles to Get New Cash. This Stock’s a Cautionary Tale of the Risks of Passive Investing. New Gold ETF’s Rise Shows Low Cost Is King for Wary Investors.

Good Intel

JPAM will be the biggest money manager yet to flip mutual funds into ETFs. Where will this emerging trend go from here?

Conversions are much more logical for both fund issuers and investors versus launching an ETF clone, as it allows the manager in question to bring over assets and a track record, while washing out existing taxable gains. The massive $29 billion mutual fund-to-ETF conversion by Dimensional has likely kicked off a 10-year wave that could surpass $1 trillion.

ETF Jeopardy!

A one-of-a-kind product that effectively tracks the health of Wall Street, this fund was all-but forgotten for more than a decade after the crisis before sparking into life earlier this year. It’s now seeing some big outflows as investors decide that most of the upside in the finance business has been priced in.

That’s the answer. The question identifying this fund will appear next week. Last edition’s question: What is the Direxion Daily Technology Bull 3X Shares ETF, ticker TECL?

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Roy Walsh

Roy Walsh

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