JPMorgan ActiveBuilders EM Eq ETF JEMA

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

The strategy's investment process inspires confidence and earns 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 more stocks with high dividend or buyback yields. 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 primary contributor to the rating is the parent firm's five-year risk-adjusted success ratio of 56%. 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. The parent firm's excellent risk-adjusted performance, as shown by its average 10-year Morningstar Rating of 3.3 stars, also influences the rating. Lastly, the process is limited by the number of months that the management team has been running this vehicle together.

This strategy tends to hold smaller, more value-oriented companies compared with its average peer in the Diversified Emerging Mkts Morningstar Category. Looking at 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. Higher-yield stocks can provide dependable income, but also have their risks. Dividend payers may cut payouts, for instance, if their earnings fall. 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. Given the high trading volume of holdings, this strategy has been exposed to liquid assets during these years. This gives the managers more flexibility during bear markets to sell without adversely affecting prices. Compared with category peers, however, the strategy had less Liquidity factor exposure in the latest month. During the last few years, this strategy has also tilted in favor of high-quality stocks, those that have demonstrated low financial leverage and solid return on equity. This means the fund holds consistently profitable, growing companies with solid balance sheets that may help it endure downturns better than Morningstar Category peers. 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 3.5 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; however, the allocations are similar to the category. The strategy owns 541 securities and is similarly diversified as peers, with 25.0% of portfolio assets concentrated within the top 10 holdings. And finally, in terms of portfolio turnover, on a year-over-year basis, 46% of the fund's holdings have changed, whether through increasing, decreasing, or changing a position.

The leading factor affecting the rating is its parent firm's five-year success ratio of 56%. The measure indicates the percentage of a firm's funds that survived and outperformed their respective category's median return for the period. The stability of talent across its parent firm also strengthens the rating. The firm's asset-weighted manager tenure of 20 years demonstrates its ability to retain portfolio managers. 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.

The team is backed by Anuj Arora, the longest-tenured manager on the strategy, who provides 21 years of listed portfolio management experience. The average Morningstar Rating of the strategies they currently manage is 2.7 stars, indicating that their risk-adjusted returns have been in line with the category average. Anuj Arora has an experienced backdrop of support. The three listed managers boast 13 years of average 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 3.3 percentage points, and underperformed the category average by 5.1 percentage points. And more importantly, when looking across a longer horizon, the strategy fell behind the index. On a three-year basis, it lagged the index by an annualized 1.4 percentage points.

Even when adjusting for risk, the fund is not favorable. The share class trailed the index with a lower Sharpe ratio, a measure of risk-adjusted returns, over the trailing three-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. 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 sits in the cheapest quintile of its Morningstar Category. Its low expense ratio, considered jointly with the fund’s People, Process, and Parent Pillars, indicates that this share class has the ability to deliver positive alpha against its category benchmark, leading to its Morningstar Medalist Rating of Bronze.