JPMorgan Large Cap Growth C OLGCX

JPMorgan Large Cap Growth’s team has handled a tricky momentum-centric approach well.

Lead manager Giri Devulapally’s experience and expertise give this strategy an edge. He joined the firm in 2003 and has delivered exceptional results here since July 2005. Devulapally’s background as a technology and communications analyst fits the composition of this tech-heavy portfolio well, and an impressive supporting cast backs him. He leans on a team of five experienced sector analysts, four of whom were promoted to comanager between 2020 and 2022 as a recognition of their contributions to the strategy and to bolster eventual succession prospects. Comanagers Larry Lee, Holly Fleiss, Joseph Wilson, and Robert Maloney average more than 20 years of experience, including 12 at J.P. Morgan, and know their holdings well. The team has been relatively stable, and when departures occur, it successfully brings on experienced hires like consumer analyst Janet King in late 2022.

The team operates a sound approach that is backed by strong fundamental research; however, an emphasis on price momentum introduces some uncertainty. The team searches for competitively positioned companies with long-term growth and margin expansion opportunities. But rather than sizing positions purely based on its fundamental conviction, the team often follows the market’s lead when it comes to building or trimming a position. The team has done a decent job executing this approach, but its reactive nature can stumble in choppier markets. In addition, balancing the influence of price momentum with its fundamental analysis can be difficult to apply consistently.

Still, the team has delivered stellar results as stock selection has stood out and its momentum-based approach has acted as a tailwind. Under Devulapally’s lead from July 2005 through January 2024, the A shares’ 12.4% annualized return topped the challenging Russell 1000 Growth Index’s 11.8% and handily beat the typical large-growth Morningstar Category peer’s 9.5%.

Manager Giri Devulapally and his team aim to find big, long-term winners while also minimizing downside risk. They do this by seeking companies with competitive advantages, margin expansion opportunities, and large addressable markets. Devulapally believes the biggest winners are often expensive. Even so, he closely monitors each stock’s relative price tag and will trim it if its valuation looks stretched relative to its own history. To minimize risk, he often sizes initial positions modestly and will bolster the position if the stock goes up or cut losses upon a decline. Portfolio turnover is modest and typically sits around 20% to 50% annually, in line with its typical large-growth peer. Name turnover is even lower, which underscores that the team isn’t churning through ideas frequently.

Still, momentum plays an explicitly large role here, and Devulapally often shifts sector allocations and the underlying characteristics of the portfolio based on which corners of the market are experiencing the most positive price changes. Devulapally sees positive price momentum as a signal that the market has recognized a stock’s potential, pointing to further upside. Notably, he will occasionally reduce or eliminate a stock if price momentum weakens, even if he and the team still believe in the fundamental thesis, a curious move that implies at times he values the market’s opinion over his own.

The team’s emphasis on positive price momentum can create large swings in sector allocations and the strategy’s underlying characteristics. For example, as the team shifted focus to build positions in secular growers in the high-flying technology and communications sectors throughout 2023, the strategy's 10-percentage-point overweighting in healthcare going into the year turned into a slight underweighting by year's end.

This strategy’s valuation metrics relative to its Russell 1000 Growth Index benchmark can fluctuate, too. For much of Giri Devulapally’s 19-year tenure, the portfolio exhibited high price multiples relative to the index as growth stocks led the market higher with strong price momentum and secular tailwinds. During 2021 and 2022, however, the portfolio looked more defensive. While this shift might have looked out of sorts, it aligns with the team’s momentum-conscious philosophy as many high-growth stocks rolled over during that period. Entering 2024, the portfolio’s 34.2 price/earnings ratio and 4.4 price/sales ratio aligned closely with both the index and its typical peer as Devulapally leaned back into high-growth stocks.

Devulapally is not afraid to let his winners ride and often adds to positions once a stock begins to appreciate. Notably, during the 2023 surge in stock prices for companies such as Nvidia NVDA and Meta Platforms META, the team significantly increased its holdings in these companies. The portfolio’s allocation to Nvidia jumped to 5% of assets from 1%, while Meta's allocation climbed to 5% from near zero. As of December, the strategy was slightly underweight in Nvidia and modestly overweight in Meta versus the Russell 1000 Growth Index.

Lead manager Giri Devulapally gives this strategy a solid foundation. He joined J.P. Morgan in 2003 after spending six years as a technology and communications analyst at T. Rowe Price, a relevant background for this tech-heavy strategy. He became comanager of this strategy in August 2004 and lead manager in August 2005. This portfolio receives his full attention, as it is the only one he manages.

A strong team of comanagers surrounds him and adds to this strategy’s appeal. Devulapally partners with each of his four sector managers to construct the portfolio but has the final say in every decision. Larry Lee, Joseph Wilson, Holly Fleiss, and Robert Maloney were promoted to comanagers between 2020 and 2022 as a recognition of their tenures and contributions to the team. Each is well-versed in J.P. Morgan’s investment philosophy, having spent between eight and 17 years on the team, and each brings extensive backgrounds in their respective sectors. Although personnel turnover is rare, the team has shown an ability to hire experienced analysts who can contribute to the team quickly. In late 2022, the team brought on consumer analyst Janet King, who had covered consumer stocks for more than 20 years and contributed to the team’s timely buys of Amazon.com AMZN in 2023.

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.

Under Devulapally’s watch from July 2005 through January 2024, the strategy’s A shares gained 12.4% annualized, outpacing the challenging Russell 1000 Growth Index’s 11.8% and handily beating the typical large-growth category peer’s 9.5%. The strategy has kept pace with the broader market during rallies and shown resilience during downturns, an impressive feat. Indeed, under Devulapally the strategy has captured 106% of gains in up months and just 95% of losses in down months relative to its typical large-growth peer.

Still, investors should expect a choppy ride at times. The strategy’s explicit momentum bet could backfire if markets change course unexpectedly or exhibit a mean-reverting pattern. During 2023’s turbulent market, for instance, the strategy’s 34.3% gain meaningfully lagged the Russell 1000 Growth Index’s 42.7% while slightly trailing its average peer’s 35.8% rise.

On the other hand, its preference for momentum provided early tailwinds in 2024 as many stocks that ended 2023 strongly continued their rise. Its 4.3% return in January beat the 2.5% return of both the index and typical peer. Overweighting high-flying stocks like Eli Lilly LLY and underweighting struggling large caps like Tesla TSLA aided the results.

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.