JPMorgan BetaBuilders US Mid Cap Eq ETF BBMC

The portfolio maintains a sizable cost advantage over competitors, priced within the cheapest 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 leading factor in 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 59% also bolsters the rating. 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. Their respectable success ratio suggests that the firm does well for investors and that this fund may benefit from that. The firm's five-year retention rate of 83% supports the rating as well.

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 energy, that are similar to the category. The sectors with low exposure compared to category peers are technology and utilities; however, the allocations are similar to the category. The portfolio is composed of 597 holdings and its assets are more dispersed than peers in the category. In particular, 4.9% of the strategy's assets are concentrated in the top 10 fund holdings, as opposed to the category average's 15.9%. And in closing, in terms of portfolio turnover, this fund trades less regularly than the typical peer in its category, which may result in a lower cost to investors.

There are four managers listed on the fund: Nicholas D’Eramo, Oliver Furby, Michael Loeffler, Alex Hamilton. The team is well equipped, with an average of 11 years of portfolio management experience. Together, they manage a total of eight strategies, with a Silver asset-weighted average Morningstar Medalist Rating, indicating the potential 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 40 basis points, and underperformed the category average by 1.2 percentage points. And more importantly, when extended to a longer time frame, the strategy fell behind the index. On a three-year basis, it trailed the index by an annualized 50 basis 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. However, this strategy stayed in line with the benchmark's standard deviation. 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 is in the cheapest quintile of its Morningstar Category. Its low expense ratio, taken together with the fund’s People, Process, and Parent Pillars, suggests that this share class has high potential to deliver positive alpha relative to the lesser of its median category peer or the category benchmark, explaining its Morningstar Medalist Rating of Silver.