JPMorgan Divers Ret US Small Cap Eq ETF earns a High Process Pillar rating.
The largest contributor to the rating is the fund's impressive long-term risk-adjusted performance. This can be seen in its five-year alpha calculated relative to the category index, which suggests that the managers have shown skill in their allocation of risk. This fund tracks an index, which also increases its process rating. Historical data, like Morningstar's Active/Passive Barometer, shows that passively managed funds have generally outperformed their active counterparts, especially over longer time horizons. The parent firm's superior risk-adjusted performance, as shown by its average 10-year Morningstar Rating of 3.3 stars, influences the rating as well.
This strategy leans toward smaller, deeper value companies than its average peer in the Small Blend Morningstar Category. Analyzing additional factors, this strategy has consistently overweighted the volatility factor compared with Morningstar Category peers over the last few years, meaning it invests in stocks with a history of the higher standard deviation of returns. This orientation tends to pay off most prominently when markets are hot. In recent months, the strategy was more exposed to the Volatility factor compared with its Morningstar Category peers as well. This strategy has also demonstrated a bias towards lower-momentum stocks over its peers over the past years. Momentum tends to be a powerful force in asset markets, as stocks that have done well recently usually continue to do so in the short term. As top performers change, this can sometimes be hard to capture without higher trading costs. Similarly, in recent months, the strategy also had less exposure to the Momentum factor than peers. Additionally, the managers have tended to overweight yield, shown by the portfolio's high exposure to stocks paying dividends or buying back shares. Stocks with high yields can be more stable, mature companies, but at times extreme market pressure or fundamental deterioration may prompt them to cut their dividends, which tends to hurt stock performance. In this month, the strategy also had more exposure to the Yield factor over 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 real estate and consumer defensive relative to the category average by 8.2 and 4.0 percentage points, respectively. The sectors with low exposure compared to category peers are industrials and consumer cyclical, underweight the average by 6.6 and 4.4 percentage points of assets, respectively. The portfolio is positioned across 567 holdings and is less top-heavy than peers. Specifically, 3.9% of the portfolio's assets are concentrated within the top 10 fund holdings, as opposed to the typical peer's 25.8%. And in closing, in terms of portfolio turnover, this fund trades less frequently than the category’s average, potentially limiting costs to investors.