JPMorgan Mortgage-Backed Securities ETF JMTG

JPMorgan Mortgage-Backed Securities ETF remains a top option among peers, even with longtime comanager Michael Sais’ plan to retire in April 2026.

Topnotch management should continue for this exchange-traded fund, whose strategy before June 27, 2025, was run in essentially the same manner in a mutual fund wrapper. JPMorgan veterans Rick Figuly and Andy Melchiorre remain as the day-to-day managers, while the addition of securitized specialist Sajjad Hussain to the roster in November 2024 added depth. These veteran comanagers have used their mortgage-backed securities expertise to generate impressive results, and their bottom-up security-selection efforts give them an edge versus most rivals. Figuly, on the strategy since 2015, is the head of JPMorgan’s value-driven core-bond team and works alongside MBS expert Melchiorre (2019). Hussain has limited management experience, yet his understanding of securitized markets runs deep, as the former head of the firm’s securitized research team; he brings 28 years of industry experience. Still, it’s very much a team effort with the managers’ fundamental research efforts, as they also draw on additional MBS specialists and a growing nine-person securitized analyst group for ideas and ongoing surveillance.

The strategy's substantial MBS holdings distinguish it from intermediate-core bond peers who typically tailor their portfolios based on the Bloomberg US Aggregate Bond Index, which features a mix of Treasuries, investment-grade corporates, and agency MBS. This portfolio comprises agency residential and commercial MBS, typically having 65% to 80% of assets, compared with its typical peers, who have historically allocated between 25% and 30% to similar bonds. JPMorgan's quarterly investment committee establishes the ETF's macro positioning, while these value-driven managers employ rigorous fundamental analysis to evaluate various MBS structures that meet their stringent standards, identifying bonds with favorable prepayment characteristics and attractive relative value.

The strategy's unique contours, including its absence of corporate bonds, can cause it to trail rivals during periods favorable to credit, but its high-quality, mortgage-centric holdings offer advantages when credit lags. This resilience and strong security selection have rewarded investors. Since Figuly’s first full month on the strategy began in October 2015, the ETF’s 2.1% annualized return through August 2025 surpassed the intermediate-core bond rivals' 1.9% and the benchmark's 1.7% gain. This result was better than 70% of peers.

Meticulous security selection and effective risk management drive a disciplined, bottom-up approach here, earning the strategy an Above Average Process Pillar rating.

In concert with the strategy’s June 27, 2025, conversion to an ETF from a mutual fund, JPMorgan added the ability to invest in private placements and zero-coupon securities and removed a 10% cap on investments in “subprime” mortgage-related securities at the time of purchase. This should give the managers more flexibility but not result in a material change to the approach.

The portfolio emphasizes MBS with relatively stable cash flows and prepayment protection. The process begins with JPMorgan’s quarterly investment meeting, which sets macro themes for the subsequent three to six months, while weekly sector meetings stress relative value ideas and tactical portfolio positioning. Daily collaboration and robust discussions between the managers, securitized specialists, and analysts ensure the best ideas make it into the portfolio. And the team is very selective about the bonds that make the cut; they focus their research on underlying pool analysis, cash flow stability, and relative value-driven security selection. The managers’ penchant for MBS structures that limit prepayment sensitivity (positive convexity) avoids generic pass-throughs or TBA forward contracts, instead favoring specified pools with specific characteristics; this results in a resilient portfolio.

The managers keep in mind the Bloomberg US MBS Index when building the portfolio. Stakes in a variety of agency mortgage-backed assets make up the bulk of the portfolio (65%-80%), while the remainder (10%-30%) comprises a mix of Treasuries, commercial MBS, nonagency MBS, and ABS. Duration, a measure of interest rate sensitivity, and yield-curve calls are secondary; the team keeps duration within a year of its benchmark, which typically changes to a greater degree (because of prepayment risk) than the Bloomberg US Aggregate Bond Index and is normally shorter than that of most of its peers. The managers use mortgage derivatives, such as principal- and interest-only bonds, moderately, given the higher volatility of these structures.

The strategy's substantial MBS holdings distinguish it among intermediate-core bond peers, where most constituents largely track the Bloomberg US Aggregate Bond Index, which features a diversified mix of Treasuries, investment-grade corporates, and agency MBS.

The ETF’s approximately 76% stake in agency MBS has changed little over the past few years, which reflects strong relative value versus other securitized sectors; however, the managers have favored wider spreads in agency RMBS exposure, which has risen to 56.2% of assets (as of June 2025) from 47.0% two years before, while its 19.7% in agency CMBS stakes are about 4 percentage points less. Smaller allocations to nonagency MBS (9.5%), CMBS (9.8%), Treasuries (2.9%), and ABS (1.3%) complete the portfolio; these exposures are virtually unchanged from a year ago.

Reflective of the team’s somewhat cautious approach, since 2022, the portfolio’s weighting in AAA and AA rated bonds has increased (albeit the US government’s downgrade saw more than 80% of the portfolio’s AAA rated stakes drop to AA). The June 2025 portfolio’s 84.3% allocation to these highest-rated bonds exceeded the strategy’s long-term average of around 80% and its typical peer’s 67%. To maintain competitive yields with peers, the managers concentrate non-AAA risk within their nonagency securitized allocation.

The managers align duration with the Bloomberg US MBS Index, which exposes the ETF to larger shifts than most peers experience. For example, as long-term yields rose beginning in 2022, the portfolio's duration extended to 5.9 years in July 2023 from around 3.0 years two years before that. More recently, the ETF’s 6.0-year duration was near the peer median.

Appreciation for how this ETF’s seasoned managers ply their MBS expertise while drawing on the deep supporting resources of JPMorgan’s fixed-income platform earns the strategy a High People Pillar rating.

Longtime comanager Michael Sais plans to retire in April 2026 but remains on the strategy until then. While Sais had the longest tenure among the comanagers, his role was not primary to the day-to-day decisions of this ETF.

In preparation for Sais’ departure, JPMorgan tapped securitized specialist Sajjad Hussain as a comanager on the ETF. He is an up-and-comer at JPMorgan, recently promoted to portfolio manager from the head of securitized research. His deep securitized experience fits the ETF’s focus on mortgage-backed debt. He will be a good complement to JPMorgan mainstay Rick Figuly and securitized expert Andy Melchiorre. Figuly started at JPMorgan in 1993 and joined the strategy in 2015; he then rose to become the head of the US core bond team in late 2019. The firm added Melchiorre to the roster in 2019; his industry experience dates to 2008.

Alongside the managers, the firm’s large network of fixed-income specialists helps guide macro positioning and contributes to bottom-up ideas and security selection. Experience matters when sourcing and selecting bonds that meet the team’s stringent standards. The managers conduct much of their bottom-up research and trading, but also draw on specialized portfolio managers and a growing team of securitized analysts, especially for nonagency debt. A nine-person fundamental research cohort is responsible for securitized analysis and surveillance and collaborates with the managers on investment ideas. This tight-knit team jointly makes portfolio decisions and works out any differences in the best interests of the portfolio.

Managers’ personal ownership, which fosters a better alignment with investors, is solid. Figuly and Melchiorre each invest between USD 100,001 and USD 500,000, Sais invests more than USD 1 million, and Hussain invests none.

J.P. Morgan continues to build a track record of strong stewardship, supporting a Parent rating upgrade to High from Above Average.

With more than USD 4 trillion in assets under management (including USD 1.3 trillion in money market funds) and a broad reach, J.P. Morgan is among the largest active asset managers in the US, Europe, and Asia. Although some multi-asset offerings have struggled over the past five years, prompting new leadership to make changes to investment teams, its equity and fixed-income teams boast long-tenured portfolio managers who practice repeatable investment processes that have generally produced strong long-term results. Most of its funds are core building blocks with long lifetimes, though its lineup around the world also includes more-specialized options: Two options-based equity-income exchange-traded funds, launched in 2020 and 2022, are now among the firm’s largest. J.P. Morgan has been an early mover in offering active ETFs, having converted 12 of its open-end mutual funds to the structure and launching others. It isn’t always at the forefront of emerging trends. While it has filed registration statements with the Securities and Exchange Commission for an interval fund and an ETF investing in private markets, it hasn’t yet introduced such an option for all investors, whether on its own or in partnership with another asset manager, unlike some of its closest competitors.

To support the firm’s diverse investment offerings, J.P. Morgan has invested heavily in both portfolio management tools and its client organization. Over the past 10 years, the firm has developed robust proprietary technology with advanced analytics and broad buy-in from investment analysts, portfolio traders, and portfolio managers, all of whom have easy access to the platform. The firm also stands apart for its demonstrated commitment to clients. In the early 2000s, J.P. Morgan began pivoting its engagement with financial advisors to adopt a more consultative approach, supported by its sought-after Guide to the Markets research series that focuses on investor education, not product pitches. This perspective can help clients stay the course, supporting positive investor outcomes.

Incentives reinforce alignment with fundholders. Beginning more than 10 years ago, investment team compensation is tied to three-, five-, and 10-year performance, and portfolio managers must invest at least half of their deferred compensation in J.P. Morgan strategies. Many firms encourage portfolio managers to invest alongside fundholders, but J.P. Morgan goes a step further in requiring client-facing individuals to invest substantial portions of their incentive compensation in the funds.

Although some funds still face high cost hurdles, more than half of share classes charge competitive fees relative to peers.

The ETF's distinctive style sets it apart from most peers, yet this strategy's MBS focus, combined with solid security selection, has generated compelling results.

Over the trailing 10 years, about the time Rick Figuly joined, the ETF’s 2.2% annualized return through August 2025 beat the intermediate-core Morningstar Category’s median 1.9% gain and the Bloomberg US Aggregate Bond Index's 1.8%. That this top-quartile result was just as good when adjusting for volatility is a testament to the ETF’s approach. Annualized returns over the past three- and five-year periods demonstrate similarly robust performance.

The ETF's MBS focus, which creates a higher-quality portfolio compared to peers, has dampened volatility effectively. Its annualized 10-year 4.3% standard deviation was lower than the peer median and the benchmark's 5.0%. And during market stress periods, the ETF consistently outperforms. When corporate bond spreads widened during 2018's fourth quarter, for example, the strategy’s 2.3% gain exceeded its average rival's 1.4%. When long-term yields rose in 2022 amid higher inflation concerns, the strategy's shorter-duration profile limited its loss to 10.3%, versus a 13.3% decline for its typical peer. The trailing 12-month period was favorable for this ETF; its 3.9% gain was a top-quartile showing; strong security in MBS and CMBS fueled this strong showing.

Despite its enviable track record, the ETF sometimes behaves differently from most peers. During periods favoring credit risk, the strategy has lagged competitors with larger corporate-bond stakes. Its variable-duration profile may not provide as effective diversification to risk assets as traditional, longer-duration peers during certain periods.

JPMorgan Mortgage-Backed Securities ETF's Prospectus Adjusted Expense Ratio is 0.24% per year. It places it in the cheapest quintile of the Morningstar US Fund Securitized Bond - Diversified Category, where the median fee is 0.69% per year. This cost positioning translates into a Medalist Rating Price Score of 2.4, which reflects its relative price positioning within the category. The Price Score ranges from -2.50 (most expensive) to +2.50 (cheapest), with higher scores indicating better cost competitiveness.