JPMorgan BetaBuilders US Sml Cp Eq ETF BBSC

JPMorgan BetaBuilders US Sml Cp Eq ETF’s strong process and parent firm underpin this strategy's Morningstar Quantitative Rating of Gold. The portfolio maintains a cost advantage over competitors, priced within the lowest fee quintile among peers.

The strategy's sensible investment philosophy merits 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 belongs to a strong asset-management firm that earns an Above Average Parent Pillar rating. The firm, for example, has had a competitive lineup success ratio and overall affordable fees. Finally, the team managing the passive strategy earns the strategy an Average People Pillar rating.

Morningstar's evaluation of this security's process aims to determine the likelihood that it will outperform its Morningstar Category benchmark on a risk-adjusted basis over the long term. JPMorgan BetaBuilders US Sml Cp Eq ETF earns a High Process Pillar rating. 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 Small Cap Target Market Exposure Extended IndexSM. The fund will invest at least 80% of its assets in securities included in the index and at least 80% of its assets in the securities of small-capitalization companies. The index consists of equity securities primarily traded in the United States and targets those securities that fall between the 95th and 99th percentiles in market capitalization of the free float adjusted investable universe.

The portfolio has allocations in its top 2 sectors, healthcare and technology, that are similar to the average portfolio in the category. The sectors with low exposure compared to their category peers are industrials and basic materials; however, the allocations are similar to the average category portfolio. The portfolio is composed of 933 holdings and is less top-heavy than peers. Specifically, 3.2% of the fund’s assets are concentrated within the top 10 fund holdings, compared to the category average's 26.2%. 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.

JPMorgan’s team is valuable but does not stand out as one of the industry's best, warranting an Average People Pillar rating. There are four managers listed on the fund: Michael Loeffler, Nicholas D'Eramo, Oliver Furby, Alex Hamilton. The team is well equipped, with an average of 14 years of portfolio management experience. Together, they manage a total of five strategies, with a Silver asset-weighted average combined Morningstar Analyst and Quantitative Rating, indicating the potential to deliver positive alpha relative to the category median in aggregate.

A well-resourced, thoughtful, and disciplined steward of client assets, JPMorgan Asset Management maintains an Above Average Parent rating.

As of 2022, this investment stalwart manages more than USD 2.5 trillion in AUM. Composed of various cohorts globally and a diverse set of 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.

Since its inception about two years ago in November 2020, this share class has delivered mixed performance, depending on the comparison point. However, with such a narrow track record, it is inappropriate to form a meaningful opinion on its prospects. In the last two years, this share class has lost 3.7%, compared with the category benchmark's, Russell 2000 Index’s, -4.4% return for the same period. However, it trailed peers as the category’s average return for the period was 1.8%. The share class outstripped the index with a higher Sharpe ratio, a measure of risk-adjusted return, over the trailing one-year period.

Fees are one of the most predictive factors of future performance. This fund lands in the cheapest quintile of its Morningstar Category. Its attractive fee, considered jointly with the fund’s People, Process, and Parent Pillars, results in a judgment that this share class has the ability to deliver positive alpha versus the lesser of its median category peer or the category benchmark, explaining its Morningstar Quantitative Rating of Gold.