JPMorgan Diversified Return EMkts Eq ETF JPEM

The portfolio maintains a 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 yield exposure and an underweight in volatility exposure compared with category peers. High yield exposure is attributed to holding high dividend-paying or buyback stocks, and is suitable for income seekers outside of fixed-income. And low volatility exposure is rooted in stocks that have a lower standard deviation of returns. 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 Diversified Return EMkts Eq ETF earns a High Process Pillar rating.

The main driver of the rating is that this fund tracks an index. Historical data, such as Morningstar's Active/Passive Barometer, finds that passively managed funds have generally outperformed their active counterparts, especially over longer time horizons. Excellent risk-adjusted performance also supports the rating. This can be seen in the fund's five-year alpha calculated relative to the category index, which suggests that the managers have shown skill in their allocation of risk. The parent firm's five-year risk-adjusted success ratio of 59% supports 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 commendable success ratio suggests that this firm does well for investors and that this fund may benefit from that.

This strategy skews toward smaller, more value-oriented companies than its average peer in the Diversified Emerging Mkts Morningstar Category. Looking at additional factor exposure, this strategy has continually had more high-yield exposure than the Morningstar Category average during recent years, with the portfolio holding more stocks with high dividend or buyback yields. Higher-yield stocks can provide steady income, but also have their risks. Dividend payers may cut payouts, for instance, if their earnings fall. In recent months, the strategy was more exposed to the Yield factor compared with its Morningstar Category peers as well. The managers have also shown an underweight risk tilt, demonstrated by lower volatility exposure over peers in recent years. These low-risk stocks are typically at their best when markets are not. Low volatility exposure contributes to limited loss on the downside at the cost of a lag in bull markets. Similarly, in recent months, the strategy also had less exposure to the Volatility factor than peers. This strategy also has tilted toward low-quality stocks, companies with higher financial leverage and lower profitability over these years. Such positions do not tend to provide much ballast for a portfolio. In recent months, the strategy also had less Quality factor exposure than its peers. More information on a fund and its respective category's factor exposure can be found in the Factor Profile module within the Portfolio section.

The portfolio is overweight in industrials and utilities relative to the category average by 7.7 and 5.9 percentage points, respectively. The sectors with low exposure compared to category peers are technology and consumer cyclical, underweight the average by 16.3 and 5.6 percentage points of assets, respectively. The portfolio is positioned across 555 holdings and its assets are more dispersed than the typical peer in the category. In the most recent disclosure, 10.0% of the portfolio's assets were concentrated in the top 10 fund holdings, compared to the category average's 25.7%. 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’s a deep bench of five managers listed on the fund. Together, they manage a total of two strategies, with a Gold asset-weighted average Morningstar Medalist Rating, demonstrating their 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.

This share class led its average peer by an annualized excess return of 81 basis points over an eight-year period. And it also beat the category index, the MSCI Emerging Markets Index, by an annualized 44 basis points over the same period.

Finally, the share class proved itself ineffective as it was unable to generate alpha, over the same five-year period, against the category group index: a benchmark that encapsulates the performance of the broader asset class.

Thus, assessing cost is a critical step in any investment evaluation. This share class lands in the cheapest quintile of its Morningstar Category. Its attractive 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 compared with its category benchmark, explaining its Morningstar Medalist Rating of Gold.