JPMorgan Active Value ETF JAVA

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

The strategy's sensible investment philosophy merits an Above Average Process Pillar rating. Independent of the rating, analysis of the strategy's portfolio shows it has maintained an overweight in liquidity exposure and an underweight in quality exposure compared with category peers. High liquidity exposure is attributed to stocks with a high trading volume, lending managers more flexibility. And a low quality exposure is rooted in stocks with higher financial leverage and lower profitability. The strategy’s management team earns an Above Average People Pillar rating. The strategy's parent organization earns the firm an Above Average Parent Pillar rating. People Pillar 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.

JPMorgan Active Value ETF earns an Above Average Process Pillar rating.

The largest 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 prefers smaller market-cap firms compared with the average fund in its peer group, the Large Value Morningstar Category. But in terms of investment style, it is on par with peers. Looking at additional factor exposure, this strategy has held more highly liquid stocks compared to Morningstar Category Peers in the past few years. More-liquid assets contribute to more-flexible exit strategies without price changes and tend to be a ballast during market selloffs. For example, if the portfolio faces successive redemptions in a short period of time, it will be less likely to experience a significant loss. In recent months, the strategy was more exposed to the Liquidity factor compared with its Morningstar Category peers as well. This strategy has also tilted toward low-quality stocks, companies with higher financial leverage and lower profitability over peers in recent years. Lacking this ballast, the fund's prospects could rest on its ability to beat peers during economic booms. Similarly, in recent months, the strategy also had less exposure to the Quality factor than peers. In addition, this strategy has exhibited a tilt toward higher-volatility stocks in these years, meaning companies that have a higher historical standard deviation of returns compared with peers. Such exposure tends to pay off when markets are hot and to be costly when they are not. In this month, the strategy also had more exposure to the Volatility 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 industrials and financial services relative to the category average by 2.5 and 2.5 percentage points, respectively. The sectors with low exposure compared to category peers are technology and consumer defensive; however, the allocations are similar to the category. The portfolio is composed of 154 holdings and its assets are more dispersed than peers in the category. In particular, 21.0% of the fund’s assets are concentrated in the top 10 fund holdings, compared to the category’s 27.4% average. And finally, in terms of portfolio turnover, looking at year-over-year movements, 80% of the fund's holdings have changed, whether through increasing, decreasing, or changing a position.

The team is backed by David Silberman, the longest-tenured manager on the strategy, who brings over 25 years of listed portfolio management experience. The average Morningstar Rating of the strategies they currently manage is 2.0 stars, indicating that their risk-adjusted returns have underperformed the category average. The team boasts an experienced corps of listed portfolio managers, with three others supporting David Silberman. Together, they average over 25 years of listed portfolio management experience. As a team, they manage two investment vehicles together, with a Silver asset-weighted average Morningstar Medalist Rating, demonstrating their potential to deliver positive alpha in aggregate. None of the managers here invest any money in the strategy, which is disappointing, as such investments help align managers' interests with fundholders.

Note: The People Pillar rating is indirectly assigned by an analyst. The longest-tenured manager of the fund also manages a different product rated by an analyst. Their analyst-assigned People Pillar rating is combined here with the People scores (algorithmic or analyst-assigned) for the fund’s other managers on a tenure-weighted basis.

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.

However, with such a short period of analysis, a meaningful conclusion on its prospects is still a way off. In the last two years, this share class has returned 7.1%, compared with the 6.4% return of the category index, the Russell 1000 Value Index, for the same period. However, it was even with peers as the category’s average return for the period was 7.1%. The share class had a lower Sharpe ratio, a measure of risk-adjusted returns, than the index over the trailing one-year period.

This share class is in the cheapest quintile of its Morningstar Category. Its low fee, paired with the fund’s People, Process, and Parent Pillars, suggests that this share class has the ability to deliver positive alpha compared with its category benchmark, leading to its Morningstar Medalist Rating of Silver.