JPMorgan BetaBuilders US Mid Cap Eq ETF BBMC

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

The strategy's effective investment philosophy supports a High Process Pillar rating. Independent of the rating, analysis of the strategy's portfolio shows it has maintained a significant overweight position 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 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 BetaBuilders US Mid Cap Eq ETF earns a High Process Pillar rating.

The most important driver of the rating is that this fund tracks an index. Historical data, like Morningstar's Active/Passive Barometer, finds that passively managed funds have generally outperformed their active counterparts, especially over longer time horizons. The parent firm's five-year risk-adjusted success ratio of 57% also influences the rating. The measure indicates the percentage of a firm's funds that survived and outperformed their respective category's median Morningstar Risk-Adjusted Return for the period. Their impressive success ratio suggests that the firm does well for investors and that this fund may benefit from that. The size of the portfolio management team strengthens the process as well. With four portfolio managers at the helm, the fund is reasonably well-resourced.

The investment strategy as stated in the fund's prospectus is:

The investment seeks investment results that closely correspond, before fees and expenses, and to the performance of the Morningstar® US Mid Cap Target Market Exposure Extended IndexSM. The fund will invest at least 80% of its assets in securities included in the underlying index. The underlying index consists of equity securities primarily traded in the United States and targets those securities that fall between the 85th and 95th percentiles in market capitalization of the free float adjusted investable universe.

The portfolio has allocations in its top two sectors, industrials and consumer cyclical, that are similar to the category. The sectors with low exposure compared to category peers are financial services and utilities; however, the allocations are similar to the category. The portfolio is composed of 600 holdings and its assets are more dispersed than peers in the category. In particular, 6.3% of the fund’s assets are concentrated in the top 10 fund holdings, compared to the typical peer's 15.4%. And finally, in terms of portfolio turnover, on a year-over-year basis, 25% of the fund's holdings have changed, whether through increasing, decreasing, or changing a position.

There are four managers listed on the fund: Michael Loeffler, Nicholas D’Eramo, Oliver Furby, Alex Hamilton. Experience on the team is abundant, with 12 years of average portfolio management experience. Together, they manage a total of eight 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.

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.

Over the past year, it trailed the category index, the Russell Midcap Index, by an annualized 63 basis points, but outperformed its average peer by 21 basis points. And more importantly, when looking across a longer horizon, the strategy fell behind the index. On a three-year basis, it trailed the index by an annualized 2.7 percentage points.

When risk is properly accounted for, the strategy is not any more compelling. The share class trailed the index with a lower Sharpe ratio, a measure of risk-adjusted returns, over the trailing three-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 period, against the category group index: a benchmark that encapsulates the performance of the broader asset class.

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