JPMorgan ActiveBuilders EM Eq ETF JEMA

The portfolio maintains a sizable cost advantage over competitors, priced within the cheapest fee quintile among peers.

The strategy's effective investment philosophy supports an Above Average Process Pillar rating. Independent of the rating, analysis of the strategy's portfolio shows it has maintained an overweight in yield exposure and liquidity exposure compared with category peers. High yield exposure is attributed to holding high dividend-paying or buyback stocks, and is suitable for income seekers outside of fixed-income. And a high liquidity exposure is rooted in stocks with higher trading volumes, lending managers more flexibility. This management team has a wealth of experience, but still gets an Average People Pillar rating. The strategy's parent organization earns the firm an Above Average Parent Pillar rating, and this rating is inherited from vehicles belonging to the same branding entity and is indirectly assigned by an analyst.

JPMorgan ActiveBuilders EM Eq ETF earns an Above Average Process Pillar rating.

The leading factor in the rating is its parent firm's impressive long-term risk-adjusted performance, as shown by the firm's average 10-year Morningstar Rating of 3.3 stars. The parent firm's five-year risk-adjusted success ratio of 57% also supports the process. The measure indicates the percentage of a firm's funds that survived and beat their respective category's median Morningstar Risk-Adjusted Return for the period. Their respectable success ratio suggests that the firm does well for investors and that this fund may benefit from that. Lastly, the process is limited by the number of months that the management team has been running this vehicle together.

This strategy skews toward smaller, deeper value companies than its average peer in the Diversified Emerging Mkts Morningstar Category. Examining additional factor exposure, this strategy has continually had more high-yield exposure than the Morningstar Category average during recent years, with the portfolio holding more stocks with high dividend or buyback yields. High-yield stocks tend to be associated with more mature, profitable businesses that can grow as well as provide a stream of income. Such stocks could suffer, however, if setbacks force them to cut their dividends. Different from its historical appetite, however, the strategy was less exposed to the Yield factor compared with Morningstar Category peers in the most recent month. This strategy has also been exposed to liquid stocks during these years. Such stocks may have less potential upside than illiquid holdings, but they are easier to trade during market downturns. Compared with category peers, the strategy also had more exposure to the Liquidity factor in the most recent month. Additionally, the strategy has constantly maintained a defensive tilt, with exposure to high-quality stocks. Such holdings could cause it to trail peers during economic booms, but help it better withstand busts. In this month, the strategy also had more exposure to the Quality factor over its peers. More information on a fund and its respective category's factor exposure can be found in the Factor Profile module within the Portfolio section.

The portfolio is overweight in technology by 2.9 percentage points in terms of assets compared with the category average, and its financial services allocation is similar to the category. The sectors with low exposure compared to category peers are basic materials and healthcare, with basic materials underweighting the average portfolio by 2.6 percentage points of assets and healthcare similar to the average. The portfolio is composed of 536 holdings and is similarly diversified as peers, with 26.1% of portfolio assets concentrated within the top 10 holdings. And finally, in terms of portfolio turnover, this portfolio's holdings turn over more often than comparable products in its peer group, possibly resulting in higher costs for investors and a drag on performance.

The main contributor to the rating is its parent firm's five-year success ratio of 57%. The measure indicates the percentage of a firm's funds that survived and outperformed their respective category's median return for the period. The size of the portfolio management team also contributes to the rating. With three portfolio managers, the fund is reasonably well-resourced. Lastly, the rating is limited by the managers' failure to consistently outperform peers at the funds they run, as measured by their combined three-year manager excess returns.

Anuj Arora, the longest-tenured manager on the strategy, provides strong guidance, offering 22 years of listed portfolio management experience.

As of 2022, this investment stalwart manages more than USD 2.5 trillion in AUM. Composed of various global cohorts and diverse asset classes, the firm has more tightly integrated its capabilities in recent years, notably through the development of proprietary analytical and risk systems. Investment teams are robustly staffed and helmed by seasoned contributors. The firm’s strategies tend to produce reliable portfolios, and several flagship offerings are Morningstar Medalists. Manager incentives align with fundholders'; compensation reflects longer-term performance factors, and portfolio managers invest in the firm’s strategies as part of their compensation plans.

The firm’s funds tend to be well-priced, but they aren’t as competitive as many highly regarded peers of similar scale. Recent product launches include thematic and single-country strategies, both of which carry the potential for volatile performance and flows, along with misuse by investors. The firm remains intrepid when it comes to developing an environmental, social, and governance-focused framework and continues to move into other areas such as direct indexing through its 55iP acquisition and China through its joint venture, but these complicated initiatives take time to assess any real and lasting effect.

Over the past year, it trailed the category index, the MSCI Emerging Markets Index, by an annualized 4.2 percentage points, and underperformed its average peer by 4.4 percentage points. And more importantly, when extended to a longer time frame, the strategy was bested by the index. On a three-year basis, it trailed the index by an annualized 1.7 percentage points.

Even when adjusting for risk, the fund does not hold up. The share class trailed the index with a lower Sharpe ratio, a measure of risk-adjusted returns, over the trailing three-year period. But notably, these subpar risk-adjusted results have not come with more volatility than the benchmark, as measured by standard deviation. Finally, the share class proved itself ineffective as it was unable to generate alpha, over the same period, against the category group index: a benchmark that encapsulates the performance of the broader asset class.

This share class is within the cheapest quintile of its Morningstar Category. Its competitive expense ratio, taken together with the fund’s People, Process, and Parent Pillars, indicates that this share class is well-positioned to generate positive alpha versus its category benchmark, explaining its Morningstar Medalist Rating of Bronze.