JPMorgan Active Growth ETF JGRO

JPMorgan Active Growth JGRO merges two compelling growth strategies into a single exchange-traded fund.

Launched in August 2022, this strategy combines JPMorgan Growth Advantage VHIAX and JPMorgan Large Cap Growth OLGAX. This ETF is a 50/50 split of those two strategies but the team trades and rebalances the portfolio every two weeks.

The ETF benefits from the experience and expertise of managers Giri Devulapally and Felise Agranoff. Devulapally has successfully led JPMorgan Large Cap Growth since mid-2005 and has more than three decades of industry experience. Agranoff is set to become the lead manager of JPMorgan Growth Advantage, taking over the reins as longtime manager Tim Parton prepares for his retirement in March 2024. Agranoff, who joined the firm in 2004, is supported by a strong team of growth investors at J.P. Morgan. Given that this ETF simply combines the portfolios of Devulapally and Agranoff, each manager focuses on their respective strategies, and the communication between the two remained unchanged following the ETF’s launch.

The underlying approaches of this strategy are related, though one stands out more than the other. Devulapally and Agranoff base their stock selection on sound fundamental research, but they differ slightly in their approaches to portfolio construction. Devulapally places a greater emphasis on price momentum, often waiting for market validation of his fundamental analysis before making significant adjustments to a stock’s weighting. While reasonable, its reactive nature can stumble in choppier markets. Agranoff has a more balanced approach with a smaller emphasis on momentum. Her portfolio benefits from market-cap flexibility and leads this ETF to hold slightly more mid-caps relative to its Russell 1000 Growth Index Morningstar Category benchmark. Considering the critical role of timing when it comes to trading around price momentum, this ETF might face a slight disadvantage because of its biweekly trading schedule. The mutual funds of Devulapally and Agranoff have no such restriction.

Still, this strategy has posted impressive results since its August 2022 inception. Through January 2024, its 17.6% annualized gain edged out the challenging Russell 1000 Growth Index’s 17.5% and handily beat the typical large-growth category peer’s 14.6%. The longer-term performance of the underlying mutual funds is also impressive, as a preference for momentum-driven trading and strong stock selection has aided results.

This strategy blends Giri Devulapally’s predominantly large-cap, momentum-focused approach with Felise Agranoff’s all-cap strategy, which resembles Devulapally’s but places slightly less emphasis on momentum. Stock selection is driven by sound fundamental research, and both managers are willing to make moderate sector bets depending on where they’re finding value. While Devulapally and Agranoff do not collaborate to make decisions exclusively for this ETF, they both source ideas from an impressive team of growth-oriented analysts at J.P. Morgan, creating significant overlap in their portfolios.

Both managers seek companies with competitive advantages, margin expansion opportunities, and positive price momentum. While reasonable, these factors are commonplace among many large-growth strategies. The team believes the biggest winners are often expensive. Even so, it closely monitors each stock’s relative price tag and will occasionally trim it if its valuation looks stretched relative to its own history. Both managers are willing to hold smaller positions in riskier stocks with large upsides in markets undergoing significant change. Devulapally and Agranoff often size these positions modestly and will bolster the position if the stock goes up or cut losses upon a decline.

The strategy is well diversified and typically holds around 100 stocks. The team trades and rebalances the portfolio biweekly as a 50/50 split between JPMorgan Large Cap Growth and JPMorgan Growth Advantage. As of December 2023, each of the underlying strategies held 70 stocks, with 38 shared between them.

Although managers Giri Devulapally and Felise Agranoff often consider price momentum, portfolio turnover is modest and typically sits around 50% annually. This strategy should experience a similar level of turnover, and its 60% turnover in 2023 sat just above its typical large-growth peer. Name turnover is even lower, which underscores that the managers aren’t churning through ideas frequently.

Devulapally and Agranoff are not afraid to let their winners ride and often add to positions once a stock begins to appreciate. Notably, during the 2023 surge in stock prices for companies such as Nvidia NVDA and Meta Platforms META, the team significantly increased its holdings in these companies. This ETF’s allocation to Nvidia jumped to 5% of assets from 1.5%, while Meta's allocation climbed to 5% from near zero. As of December, the strategy was slightly underweight in Nvidia and modestly overweight in Meta versus the Russell 1000 Growth Index.

Giri Devulapally and Felise Agranoff are each responsible for 50% of this strategy’s assets. Both Devulapally and Agranoff are veterans at J.P. Morgan and have ample support from a strong team of growth investors. Devulapally joined the firm in 2003 and has delivered stellar results on JPMorgan Large Cap Growth since 2005. Agranoff joined the firm in 2004 and is slated to take over as lead manager on JPMorgan Growth Advantage following Tim Parton’s March 2024 retirement. She has stood out as an analyst at J.P. Morgan and has delivered solid results as a comanager on JPMorgan Mid Cap Growth OSGIX.

Devulapally and Agranoff both leverage J.P. Morgan’s impressive team of growth investors. The team of 15 averages 16 years of industry experience including more than seven at the firm. Analysts are divided by sector, with some specializing in large-cap stocks and others covering small and mid-cap companies. They also benefit from synergies with J.P. Morgan’s 20-plus member core research team, which supports some of the firm’s other large-cap strategies.

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.

From its August 2022 inception through January 2024, the ETF’s 17.6% annualized gain edged out the challenging Russell 1000 Growth Index’s 17.5% and handily beat the typical large-growth category peer’s 14.6%. Given the strategy’s momentum tilt, it can struggle a bit during choppier markets. The strategy’s 37.7% return in 2023 lagged the Russell 1000 Growth Index’s 42.7% while performing in line with its typical large-growth peer.

So far, this ETF has kept pace with the broader market during rallies and shown resilience during downturns. This is not surprising given the historical track records of JPMorgan Large Cap Growth and JPMorgan Growth Advantage. From its 2022 inception through January 2024, the ETF has captured 103% of gains in up months and just 94% of losses in down months relative to its typical large-growth peer.

Still, investors should expect a choppy ride at times. The strategy’s explicit momentum bet could backfire if markets change course unexpectedly or exhibit a mean-reverting pattern. This preference provided early tailwinds in 2024 and propelled the portfolio to a strong start. Its 3.6% return in January beat the 2.5% return of both the index and typical peer. An overweighting in high-flying stocks like Eli Lilly LLY and an underweighting in struggling large caps like Tesla TSLA aided results.

Based on our assessment of the fund’s People, Process, and Parent Pillars in the context of these expenses, we think this share class will be able to deliver positive alpha relative to the category benchmark index, explaining its Morningstar Medalist Rating of Bronze.