JPMorgan BetaBuilders $ InvmGrdCorpBdETF BBCB

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

The strategy merits an Above Average Process Pillar rating. The strategy’s management team earns an Average People Pillar rating. The strategy's parent organization earns the firm an Above Average Parent Pillar rating. People, Process and Parent Pillar ratings for this strategy are indirectly assigned by a Morningstar analyst rather than algorithmically derived. Please see the notes following each pillar section for more details. The details of assigning methods can be found in each pillar section.

Eligible bonds must be U.S.-dollar-denominated with a minimum par amount outstanding of$ 300 million and a fixed coupon rate. The index excludes contingent capital securities with explicit balance-sheet-based triggers, bonds with equity features(warrants, preferred, and so on), and municipal securities. It weights selected bonds by their market value and rebalances monthly.

Market-cap weighting reflects the issuance activities in this category, which has mostly been in the lower rungs of the investment-grade segment. Nearly half of the fund’s portfolio tends to be invested in BBB rated bonds, which is in line with the category average. However, the fund is overweight in A rated bonds, parking around 40% of its portfolio in these issues, while the average category peer tends to allocate only around 25%-30%. Category peers can also take small steps outside of the investment-grade space and invest a small portion of their portfolio in BB bonds. As a result, the fund takes on slightly less credit risk than the category average, which should help during credit shocks.

The fund’s average duration is slightly higher than that of its category peers, as it slightly overweights bonds at the longer end of the maturity curve. As of August 2022, its average effective duration was around 7.5 years versus 7.2 years for the category average.

Despite these differences, the fund’s sector allocations closely resemble that of the opportunity set in its category. Nearly one third of its assets tend to be invested in bonds from financials sector firms, reflecting the issuance activity in the investment-grade credit space.

Note: The Process Pillar rating and analysis are indirectly assigned by an analyst. When an analyst covers a passively managed vehicle that tracks a particular index, Morningstar associates the Process Pillar rating assigned to that vehicle with the index concerned. Morningstar then maps the Process Pillar associated with a given index to any other uncovered passive strategies that track the same index. This ensures that the analyst’s view is leveraged whenever available and promotes consistency when analyzing passive vehicles associated with a given index.

There are four managers listed on the fund: Naveen Kumar, Qiwei Zhu, Supreet Khandate, Sameer Iqbal. The team is inadequately equipped. Together, they average four years of portfolio management experience. Though they do not manage other products together, managers may manage them individually. The team has faced turnover as of late, with Eric Isenberg leaving within the last three months. Even though it is a passive fund, high turnover can still hinder the effectiveness of the investment process.

Note: This People Pillar rating is indirectly assigned by an analyst. Morningstar analysts evaluate the People Pillar for passive products at the brand level and may also differentiate by asset class. There is at least one other passive strategy at the firm that is covered by a Morningstar analyst, so the People Pillar rating of the fund is inherited from the rating that the Morningstar analyst assigned to investment vehicles under the same brand name.

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 three years, it mirrored the category index, the Bloomberg Barclays U.S. Corporate Bond Index, but underperformed the category average by 19 basis points. And more importantly, when looking across a longer horizon, the strategy was bested by the index. On a five-year basis, it trailed the index by an annualized 23 basis points.

Even when adjusting for risk, the fund is not favorable. The share class had a lower Sharpe ratio, a measure of risk-adjusted returns, than the index over the trailing five-year period. This subpar risk-adjusted performance has not resulted in higher volatility, as measured by their standard deviation, which is close to the benchmark. However, the share class proved itself effective by generating positive alpha, over the same period, against the category group index: a benchmark that encapsulates the performance of the broader asset class.

It is good practice to weigh them heavily in any investment evaluation. This fund lands in the cheapest quintile of its Morningstar Category. Its competitive fee, paired with the fund’s People, Process, and Parent Pillars, indicates that this share class should be able to deliver positive alpha relative to the lesser of its median category peer or the category benchmark, explaining its Morningstar Medalist Rating of Bronze.