JPMorgan USD Emerging Mkts Svr Bd ETF JPMB

The portfolio maintains a sizable cost advantage over competitors, priced within the least expensive 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 underweight position in AAA rated bonds and an overweight in government bonds compared with category peers. 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 USD Emerging Mkts Svr Bd ETF earns a High Process Pillar rating.

The most important driver of 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. Respectable risk-adjusted performance also supports the process. 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.

Compared with other funds in the Emerging Markets Bond Morningstar Category, this fund, historically, hews closely to peers' credit and interest-rate sensitivity over the past few years. Opening the analysis to additional factors, the portfolio has displayed biases over time, whether towards or away from certain fixed-income instruments. Compared with the average strategy in the category, the managers have been significantly underweight AAA rated bonds in recent years. In the latest month, the strategy has also relatively underweighted AAA rated bonds compared with Morningstar Category peers. Additionally, the managers have exhibited a notable sector bias towards government bonds over the past few years. Compared with category peers, the strategy had more exposure to government bonds in the most recent month. Finally, during the past few years, the fund leaned towards debt with three- to five-year maturities. In this month, the strategy also leaned more towards debt with three- to five-year maturities compared with its peers.

This strategy's 12-month yield is 6.0%, higher than its average peer's 5.9%. It also has a 6.0% 30-day SEC yield (a measure similar to yield-to-maturity). While a higher yield may deliver more income, it also tends to indicate higher credit risk. But that isn't always the case. Over the past 12 months, the average yield of the fund has been higher than the average yield of its Morningstar Category peers. The portfolio's average surveyed credit quality is on par with peers, with both the fund and the average being rated BB.

There’s a sizable bench of five managers listed on the fund. Though they do not manage other products together, managers may manage them individually. The team has lacked continuity recently, with Eric Isenberg leaving in the last two months, detracting from its rating. Even though it is a passive fund, high turnover can still hinder the effectiveness of the investment process.

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.

Narrowing in on the past three-year period, it trailed the category index, the JPMorgan Emerging Markets Global Diversified Bond Index, by an annualized 29 basis points, and underperformed the category average by 80 basis points. Although more significantly, when looking across a longer horizon, the strategy outpaced the index. On a five-year basis, it led the index by an annualized 26 basis points.

A risk-adjusted perspective shows the fund in a more favorable light. The share class led the index with a higher Sharpe ratio, a measure of risk-adjusted return, over the trailing five-year period. These strong risk-adjusted results have not resulted in a bumpier ride for investors. This strategy took on similar risk as the benchmark, as measured by standard deviation. Finally, the share class proved itself effective by generating positive alpha, over the same period, against the category group index: a benchmark that encapsulates the performance of the broader asset class.

This share class sits in the cheapest quintile of its Morningstar Category. Its low expense ratio, in conjunction with the fund’s People, Process, and Parent Pillars, indicates that this share class should be able to deliver positive alpha compared with its category benchmark, leading to its Morningstar Medalist Rating of Gold.