A Solid Small-Cap Option Gets an Upgrade

Christopher Franz: We recently upgraded JPMorgan Small Cap Equity to Silver from Bronze due to the strength of its lead manager and investment process. Don San Jose has managed the fund since 2007 and took over as lead in early 2013. Alongside a compact supporting team of three seasoned analysts, San Jose seeks small-cap companies with durable competitive advantages and sustainable cash flows, usually between $1 billion and $3 billion in market cap.

This search for stability leads the team to favor areas such as industrials and materials over more speculative areas like biotech, which combined with a low-turnover approach, gives the fund a larger-cap bent and heavier exposure to firms with Morningstar Economic Moat Ratings, relative to small-cap peers.

The fund also courts price risk as San Jose is willing to hang onto winners from small- to mid-cap territory, but its profitability metrics remain superior to peers. This focus on quality is evident in the fund's returns since San Jose assumed lead duties, as it beats the Russell 2000 Index and small-blend Morningstar Category with less risk, notable given the fund’s technology underweight.

Further aided by below-average fees, the fund, which closed to new investors in late 2016, is a solid small-cap option.