JPMorgan Equity Index C OEICX

Fees are a weakness here. The strategy's lofty fees are a high hurdle to clear, as it is priced within the most expensive quintile among peers.

The strategy merits a High 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.

The profitability screen requires that the sum of a company’s GAAP earnings over the past four quarters be positive as well as the most recent quarter. The screen imparts a slight quality tilt to the portfolio but has a limited impact relative to other large-cap benchmarks since large-cap stocks tend to be profitable. There have been instances where the profitability screen prevented otherwise qualified companies from index inclusion. Most notably, Tesla TSLA was added to the index in December 2020, despite passing the liquidity and market-cap thresholds in January 2013. Once the index committee selects stocks, it weights them by market cap.

Market-cap weighting harnesses the market’s collective wisdom on a stock’s relative value and helps reduce turnover and associated trading costs. The index committee further curbs turnover by implementing changes as it sees fit rather than adhering to a strict reconstitution schedule.

The strategy approximates the contours of the large-cap market. Its sector composition is in line with the Morningstar US Large-Mid Cap Index with no sector deviating by more than 1%, as of December 2023. Its value-growth bias also falls in line with the Morningstar bogy.

Market-cap weighting consistently guides the index into the largest and most established names. As of December 2023, 94% of the strategy’s assets were companies with wide or narrow Morningstar Economic Moat Ratings, showcasing the portfolio’s durability.

This strategy is well-diversified. As of December 2023, its top 10 holdings represented 31% of the portfolio, generally lower than peers. However, the portfolio is more concentrated than usual. For example, recent the outperformance of a few technology companies, such as Apple AAPL, Microsoft MSFT, Amazon.com AMZN, Nvidia NVDA, Alphabet GOOGL, Tesla TSLA, and Meta Platforms META, commonly known as the Magnificent Seven, ballooned the top 10 holdings to 31% of assets at the end of December 2023, which was the highest percentage over the past 35 years. The index may become less concentrated if the market rally broadens.

The portfolio managers reinvest dividends as they are paid and use derivatives to equitize cash to keep pace with the benchmark. They also engage in securities lending to generate additional income, which may partially offset fees. But the income is limited since large-cap stocks are widely available for borrowing and don’t generate much lending revenue.

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: Michael Loeffler, Nicholas D'Eramo, Oliver Furby, Alex Hamilton. Experience on the team is abundant, with 16 years of average portfolio management experience. Together, they manage a total of five strategies, with solid long-term prospects. The strategies average a Silver asset-weighted Morningstar Medalist Rating, indicating a position to deliver positive alpha relative to the category median in aggregate. This group has been working together for a while and has been successful in retaining talent compared to peers, with no departures in the last five years.

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.

It has provided superior returns compared with peers, but poor returns compared with the category benchmark. Over a 10-year period, this share class outperformed the category’s average return by 1.1 percentage points annualized. Despite the solid performance against its peers, it did not extend when compared to the category index, Russell 1000 Index, where it trailed by an annualized 93 basis points over the same period.

When adjusting for risk, this fund is not compelling. The share class trailed the index with a lower Sharpe ratio, a measure of risk-adjusted returns, over the trailing 10-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 10-year period, against the category group index: a benchmark that encapsulates the performance of the broader asset class.

This fund charges a fee that places it in its Morningstar Category's most expensive quintile. Even with this fee, the fund’s People, Process, and Parent Pillars build confidence that this share class should be able to generate positive alpha versus the lesser of its median category peer or category benchmark, leading to its Morningstar Medalist Rating of Bronze.