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JPMorgan Funds Grow With Advisors' Confidence

The firm is sorting through its lineup as its business--and culture--evolve.

Laura Lallos, 01/14/2014

Morningstar recently issued a new Stewardship Grade for JPMorgan. The firm's overall grade--which considers corporate culture, fund board quality, fund manager incentives, fees, and regulatory history--is a C. What follows is Morningstar's analysis of the firm's corporate culture, for which JPMorgan receives a C. This text, as well as analytical text on the other four Stewardship Grade criteria, is available to subscribers of Morningstar's software for advisors and institutions: Morningstar Principia®, Morningstar Advisor Workstation(SM), Morningstar Office(SM), and Morningstar Direct(SM).

JPMorgan Asset Management's extensive mutual fund business is still a work in progress. Forged from a series of acquisitions made by parent company JPMorgan Chase, this diverse lineup continues to be refined and expanded. Meanwhile, a number of sound options are drawing advisors and plan sponsors. With almost $19 billion in inflows for the year through November 2013, it trailed only Vanguard and DFA--and raked in more than any other firm primarily associated with active management. It now ranks as the seventh-largest U.S. fund company, with more than $217 billion in total mutual fund assets.

The firm's assertive distribution effort is backed by an emphasis on education represented by the well-regarded quarterly Guide to the Markets, a book of charts illustrating market-trend data. Economist Dr. David Kelly is the face of this program, and his name may be better known to many advisors than those of the firm's fund managers. Kelly doesn't tout individual funds, and his regular "market insights calls" draw around 40,000 participants. (Meanwhile, JPMorgan wholesalers have been restyled as "client advisors.")

These outreach efforts are backed by an array of JPMorgan funds available to fit almost any slot an advisor might seek to fill. The mutual fund business is housed alongside the firm's wealth-management and private banking functions, which provide internal demand for a diverse set of strategies. The lineup of nearly 130 open-end mutual funds covers all the major Morningstar Style Box categories and asset classes and includes a sampling of specialty strategies such as market-neutral funds and those investing in commodities and currencies.

The funds boomed in the wake of the financial crisis, when parent company JPMorgan Chase & Co JPM was lauded as a conservative bastion. The timely launch of former hedge fund manager Bill Eigen's JPMorgan Strategic Income Opportunities JSOSX in 2008 drew a flood of assets, and the fund is now the firm's largest, with about $24 billion in assets. JPMorgan Core Bond WOBDX, which fared well in 2008 thanks to strong risk management and credit research, also proved popular, and it has $22 billion in assets. That fund, led by Doug Swanson, has earned a Silver Morningstar Analyst Rating (a forward-looking assessment indicating analyst confidence in a fund's prospects).

While bond funds initially drew the most attention, a number of the equity funds have seen significant inflows in recent years--even at times when other major fund companies were experiencing net outflows from stock funds. That trend is likely linked to the advisor education push, which has emphasized the appeal of equities at a time of compressed bond yields and imminent interest-rate rises. Bronze-rated JPMorgan Large Cap Growth SEEGX more than tripled in size in 2012 (and has continued to see strong inflows in 2013), while inflows at Silver-rated JPMorgan Mid Cap Value FLMVX led manager Jonathan Simon to close the fund in early 2013.

Ten of the 20 individual funds rated by Morningstar analysts are Morningstar Medalists, as is the SmartRetirement target-date series. The better funds have tended to draw the most assets, warranting analyst coverage by Morningstar (although JPMorgan Strategic Income Opportunities is rated Neutral). The lineup as a whole, however, is more middling than this cluster of Medalists might suggest. The firm's average Morningstar Rating, a measure of past risk-adjusted performance, was 3.1 out of 5 at the end of November.

The firm's five-year success ratio through November 2013 is 48%, meaning that just under half of JPMorgan funds both survived and beat the majority of their category peers over the past five years. That's in line with the fund industry average, but the firm's 10-year success ratio is only 37%. The largest firms tend to fare worse on this measure than smaller boutiques, but T. Rowe Price has a five-year success ratio approaching 80%, while Vanguard and American Funds are around 60%.

Laura Lallos is a former Morningstar analyst and editor, and a frequent contributor to Morningstar Advisor magazine.

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