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JP Morgan Fund Could Rattle Markets Friday

edited September 2023 in Fund Discussions
The fund is JHEQX.

Bloomberg published a longer, more detailed article today: “JP Morgan Options Wale Worries Resurface as Stocks Extend Drop”. (unable to link)

From Reuters: “How A Massive Options Trade by a JP Morgan Fund Can Move Markets”
https://www.yahoo.com/video/explainer-massive-options-trade-jp-100000001.html

Excerpt: ”A nearly $16 billion JP Morgan fund is expected to reset its options positions on Friday, potentially adding to equity volatility at the end of a gloomy quarter for stocks. Analysts have in the past pointed to the JPMorgan Hedged Equity Fund’s quarterly reset roiling markets, and see it as a source of potential volatility during Friday's session.

“The (fund) holds a basket of S&P 500 stocks along with options on the benchmark index and resets hedges once a quarter. The fund, which had about $15.59 billion in assets as of September 28, aims to let investors benefit from equity market gains while limiting their exposure to declines. … Assets ballooned in recent years, as investors sought protection from the sort of wild swings that rocked markets in the wake of the COVID-19 outbreak in March 2020.”

Comments

  • @hank, the fund AUM is much lower now than at the end of 2021. We have seen multiple quarterly resets since the end of 2021. Not sure why Bloomberg thought this is news now, unless it has been raising this red flag all this time and I had not seen it before.
  • edited September 2023
    BaluBalu said:

    @hank, the fund AUM is much lower now than at the end of 2021. We have seen multiple quarterly resets since the end of 2021. Not sure why Bloomberg thought this is news now, unless it has been raising this red flag all this time and I had not seen it before.

    OK - I never understood options. No idea if the fears are warranted. Thought maybe some here might be able to explain the thinking behind the theory. There has been a lot of volatility this week. I think the writers figured that with all the current volatility, the option expiration for JHEQX might be the “straw that breaks the camel’s back” so to speak. Of course, you can’t believe everything you read in the press.

  • If options and/or futures are rolled over (or reset) on a day, or in just a few days, that can be a problem. Funds can easily avoid this.
  • "the fund AUM is much lower now than at the end of 2021".

    According to M* AUM=16 billion which is what the article said.
    ==================
    "JP Morgan Fund Could Rattle Markets Friday"

    FD: doesn't look to me that way. The article is from September 30, 2022 which is a year old.
  • @FD1000, You quoted me as a header to your post and the rest of your post is not comprehensible to me in light of the quoted text. What is that I said you found objectionable?
  • edited September 2023
    BB, my mistake.

    Back to the article. It was written on Thur 10-27-2022. The next day had no rattle.
    Is the article still relevant for tomorrow=Friday?
  • No worries.
  • edited September 2023
    “It was written on Thur 10-27-2022.”

    Not bad. You’re only off here by 11 months. Yes - a genius you are. I’m in awe.
  • edited September 2023
    You guys have me totally confused, yet again. (It doesn't take much, these days.) If the article being referred to is the "Reuters: “How A Massive Options Trade by a JP Morgan Fund Can Move Markets” article on Yahoo, wasn't that published on Thursday, September 29, 2022? (9-29-22)

  • @carew388- Thanks for the reality check- I'm never too sure any more...
  • Bloomberg article in the OP (9/27/23) is now available at Yahoo Finance,
    https://finance.yahoo.com/news/jpmorgan-options-whale-worries-resurface-163447387.html
  • edited September 2023
    +1 Yogi / I guess I’m even more confused than @Old_Joe claims to be. I saw it first in Bloomberg. Appears the same story makes the circuit every few years. I’d swear I’ve seen a Reuters piece dated 2023 - but can’t find it this morning.
  • After all, JHEQX has quarterly index-option rolls (options are NOT on individual stock holdings). Fund is huge at $16+ billion (AUM peak was in 2021; M* shows outflows in much of 2022 but some inflows in 2023). The current quarterly index option roll is indeed THIS week. So, expect these articles to be recycled with updated info. See this brochure for explanation of index-options overlay to achieve 60-40 effect from all stock portfolio. IMO, why not just go for a real/genuine 60-40 fund?
    https://am.jpmorgan.com/content/dam/jpm-am-aem/americas/us/en/literature/brochure/BRO-HE.pdf
  • edited September 2023
    ”So, expect these articles to be recycled …

    Makes me question whether to renew current subscription to Bloomberg when it expires. The current Bloomberg story bears an uncanny resemblance to a year-old Reuters story. Now, I wonder if it was even generated by a living human being or something an intelligent robo churned out.
  • edited September 2023

    After all, JHEQX has quarterly index-option rolls (options are NOT on individual stock holdings). Fund is huge at $16+ billion (AUM peak was in 2021; [...] See this brochure for explanation of index-options overlay to achieve 60-40 effect from all stock portfolio. IMO, why not just go for a real/genuine 60-40 fund?
    https://am.jpmorgan.com/content/dam/jpm-am-aem/americas/us/en/literature/brochure/BRO-HE.pdf



    Good question, yogi.
    Quickly checking out a few well established moderate allocation (60/40) funds like VWELX, JABAX and FBALX, for example, shows that JHEQX has a better risk/reward profile.
    JHEQX has not only a better performance record over the past 1, 3 and 5 years than VWELX and JABAX, but also a significantly lower standard deviation, 8.7 vs. 12.3, respectively.
    While FBALX has a slightly better performance, its standard deviation is significantly higher at 13.8.
    As a retired investor, I prefer to invest in funds with lower standard deviations if the total returns of similar funds are more or less the same, never mind if they are less.
    Good luck,
    Fred
  • If there are any articles about the actual effects of the Options reset on the market, and not just what they think could go wrong articles, please share?
  • edited September 2023
    From Twitter, there was a volume spike in SPX options, but rollover passed OK.

    https://pbs.twimg.com/media/F7ONvufbUAAtomZ?format=jpg&name=900x900
    image

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