JPMorgan Divers Ret US Mid Cp Eq ETF JPME

The portfolio maintains a sizable cost advantage over competitors, priced within the least expensive fee quintile among peers.

The strategy's investment process inspires confidence and earns a High Process Pillar rating. Independent of the rating, analysis of the strategy's portfolio shows it has maintained an underweight position in volatility exposure and an overweight in yield exposure compared with category peers. Low volatility exposure is attributed to stocks with a lower standard deviation of returns. And a high yield exposure is rooted in holding high dividend-paying or buyback stocks. 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 Divers Ret US Mid Cp Eq ETF earns a High Process Pillar rating.

The main 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. The parent firm's five-year risk-adjusted success ratio of 57% also supports the process. 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 relatively high success ratio suggests that the firm does well for investors and that this fund may benefit from that. The parent firm's strong risk-adjusted performance, as shown by its average 10-year Morningstar Rating of 3.3 stars, supports the process as well.

This strategy targets deeper value plays than its peers’ average in the Mid-Cap Blend Morningstar Category. But in terms of size exposure, it is similar to the average. Examining additional factor exposure, this strategy has continually underweighted stocks that have a lower standard deviation of returns compared with Morningstar Category peers over the past few years. Such holdings can limit a strategy's downside, but cause it to lag in bull markets. In the latest month, the strategy was also less exposed to the Volatility factor compared with Morningstar Category peers. This strategy has also displayed a tendency to hold more companies with high dividend or buyback yields than peers over recent years. High-yield stocks tend to be connected to more mature companies earning enough cash to return some to shareholders. At times, however, extreme market pressure can force them to cut their dividends, which hurts stock performance. Compared with category peers, the strategy also had more exposure to the Yield factor in the most recent month. Additionally, this strategy has tilted toward illiquid stocks during these years, evidenced by holding companies with relatively lower trading volumes than peers. Less-liquid stocks might offer strong returns to compensate for their risks, but they can be harder and more expensive to trade in bear markets. In recent months, the strategy also had less Liquidity 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 utilities and consumer defensive relative to the category average by 6.0 and 4.6 percentage points, respectively. The sectors with low exposure compared to category peers are industrials and technology, underweight the average by 7.4 and 5.8 percentage points of assets, respectively. The portfolio is positioned across 361 holdings and its assets are more dispersed than the typical peer in the category. In the most recent disclosure, 4.9% of the strategy's assets were concentrated in the top 10 fund holdings, as opposed to the category average's 15.4%. And finally, in terms of portfolio turnover, looking at year-over-year movements, 24% of the fund's holdings have changed, whether through increasing, decreasing, or changing a position.

There are four managers listed on the fund: Yegang(Steven) Wu, Yazann Romahi, Natalia Zvereva, Joe Staines. Together, they manage a total of three 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.

It has provided better returns compared with peers, but poor returns compared with the category benchmark. Over a seven-year period, this share class outperformed the category’s average return by 59 basis points annualized. Despite the solid performance against its peers, it did not extend when compared to the category index, Russell Midcap Index, where it trailed by an annualized 65 basis points over the same period.

When adjusting for risk, this fund is not compelling. The share class failed to beat the index with a lower Sharpe ratio, a measure of risk-adjusted returns, over the trailing five-year period. But notably, these subpar risk-adjusted results have not come with more volatility than the benchmark, as measured by standard deviation. 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 is within the cheapest quintile of its Morningstar Category. Its attractive expense ratio, taken together with the fund’s People, Process, and Parent Pillars, indicates that this share class is well-positioned to generate positive alpha compared with its category benchmark, explaining its Morningstar Medalist Rating of Gold.