JPMorgan Income Builder A JNBAX

JPMorgan Multi-Asset Income’s seasoned team employs a thoughtful process, but the strategy has proved unable to find a balance between income, total return, and risk that is advantageous compared with the traditional Morningstar Category peer; we are downgrading its Process rating to Average from Above Average.

Day-to-day portfolio managers Michael Schoenhaut and Eric Bernbaum have been on this strategy since its 2007 inception and 2014, respectively, and Gary Herbert joined the roster in early 2021. The skilled trio manages the strategy’s four vehicles: JPMorgan Income Builder (mutual fund), JPMorgan Multi Income (Hong Kong Unit Trust), JPMorgan Global Income (SICAV), and JPMorgan Multi-Asset Income (OEIC). Jeff Geller and Leon Goldfeld act as a fourth manager on the mutual fund and the Unit Trust, respectively.

Schoenhaut and Bernbaum collaborate with managers across the firm to curate the underlying asset class and sector sleeves that comprise this global income strategy. The portfolio is flexible and can invest up to 100% in fixed income. High-yield debt cannot exceed 70% of assets, and the equity allocation is capped at 60%. The team can invest across the capital structure and in more than 80 countries. Through frequent discussions, the underlying asset class and sector experts contribute their market views, which the lead managers consider in their asset-allocation decisions. In pursuit of its goal, the portfolio has grown from five sleeves since its 2007 inception to about 20 sleeves at the beginning of 2024.

The team has managed this portfolio’s many pieces meticulously, but this income approach hasn’t boasted an advantage relative to peers. Multi-asset income funds are challenged with providing a reliable level of income to investors without hurting risk-adjusted total returns. This fund has not proved able to do so consistently.

Over the past 10 years ending February 2024, the R6 shares’ 12-month yield averaged 4%, roughly double that of the average peer, but returns lagged the median on a risk-adjusted basis (as measured by Sharpe ratio). Over the past decade ending February 2024, the portfolio’s greater-than-average allocation to equities and high-yield bonds helped performance relative to the average peer, while its greater exposure to non-US securities and value-oriented stocks acted as headwinds.

Lead portfolio managers Michael Schoenhaut and Eric Bernbaum collaborate to shape this globally diversified multi-asset income portfolio. The team works with JPMorgan managers to curate underlying sleeves that fit the overall objective. As of the beginning of 2024, the duo worked closely with more than 20 underlying portfolio managers to surface attractive investment ideas and decide on the overall asset allocation, anchored by its 60/40 equity/bond risk profile.

As a flexible and ever-evolving fund, the team may invest in over 80 countries and across the full capital structure. This includes the leeway to invest up to 100% of the portfolio in fixed income and up to 70% in high-yield bonds. It caps equity exposure at 60%, and convertible and preferred securities at 25%. The team has also dynamically invested in a wide range of asset classes, including global infrastructure and floating-rate bank loans.

Multi-asset income funds’ focus on yield can often cause them to struggle to compare favorably with non-income-focused allocation peers on a risk-adjusted, total return basis. While this fund has delivered well on its income promise, it has not demonstrated an advantage compared with the average moderately conservative category peer when it comes to consistently delivering attractive risk-adjusted total returns.

JPMorgan offers this strategy across the globe in various investment vehicles. There are modest variations across the vehicles, one of which is currency exposure. The US mutual fund version allows a maximum of 20% of its underlying exposures to be in currencies other than the US dollar. Conversely, for the Hong Kong Unit Trust, SICAV, and OEIC, foreign currency exposures are hedged back to Hong Kong dollars, euros, and pounds, respectively, except for emerging-markets currency exposures.

The following portfolio description focuses on the original mutual fund version. This fund’s equity exposure averaged close to 40% in the past five years ending December 2023, which was roughly 7 percentage points greater than its typical moderately conservative category peer. Within that exposure, this fund invested around half of its assets in non-US equities; the average peer invested closer to 20% over the same period.

The team also leaned toward value-style stocks and lower-quality bonds. Management invested just shy of 20% of the equity sleeve in value stocks, about 10 percentage points more than the peer average. US high-yield bonds have consistently made up the largest exposure in the portfolio, reaching up to around 54% of the assets at the beginning of 2009. As of December 2024, high-yield bonds accounted for roughly 25% of the portfolio, almost triple the exposure of the typical category peer.

Portfolio managers Michael Schoenhaut, Eric Bernbaum, and Gary Herbert run the strategy’s four vehicles (domiciled in the US, UK, Luxembourg, and Hong Kong) with support from Jeff Geller on the mutual fund and Leon Goldfeld on the Hong Kong Unit Trust. While start dates can vary across vehicles, Schoenhaut, Bernbaum, and Herbert joined the original mutual fund vehicle in 2007, 2014, and 2021, respectively, and average roughly 35 years of industry experience. Herbert and Geller also serve as co-CIOs of the broader multi-asset group at JPMorgan.

Day-to-day managers Schoenhaut and Bernbaum collaborate with various asset class experts and supporting teams to shape the portfolio. The duo curates and continuously monitors the underlying customized sleeves to ensure they fit the overall objective. Through structured discussions, the underlying managers of the fund’s various sleeves provide their market views, which the lead managers consider in making asset-allocation decisions. The portfolio has grown from five sleeves since its 2007 inception to about 20 sleeves at the beginning of 2024. Around 2018, there was a handful of underlying manager churn, but there has been a good level of stability since.

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.

The following performance analysis focuses on the original mutual fund version.

Over the past 10 years ending February 2024, the cheapest R6 shares’ 4.1% annualized returns were in line with the moderately conservative category median but lagged its Morningstar Moderately Conservative Target Risk Index category benchmark by 26 basis points. Over the same period, the strategy’s 12-month yield averaged 4%, roughly double that of the average peer, but returns slightly lagged the median on a risk-adjusted basis (as measured by Sharpe ratio).

The portfolio’s greater-than-average allocation to equities over the past decade helped performance as equities outperformed bonds. The strategy's greater exposure to high-yield bonds was also a tailwind as the Bloomberg High Yield Corporate Index returned 4.3%, roughly 4 times as much as the Bloomberg US Aggregate Bond Index. Meanwhile, the portfolio’s higher-than-average exposure to non-US securities and value-oriented stocks hurt performance compared with the typical peer over the same period, as they lost by a big margin compared with US securities and growth-oriented equity.

In 2023, the portfolio trailed roughly three fourths of category peers. While the international exposure and value orientation hurt performance, the higher-than-average equity and high-yield exposures contributed positively.

Based on our assessment of the fund’s People, Process, and Parent Pillars in the context of these expenses, we don’t think this share class will be able to deliver positive alpha relative to the category benchmark index, explaining its Morningstar Medalist Rating of Neutral.