JPMorgan Divers Ret US Small Cap Eq ETF JPSE

JPMorgan Divers Ret US Small Cap Eq ETF’s strong process and parent firm support this strategy's Morningstar Quantitative Rating of Gold. The portfolio maintains a cost advantage over competitors, priced within the lowest 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 an overweight in volatility exposure and an underweight in momentum exposure compared with category peers. High volatility exposure is attributed to companies with a higher standard deviation of returns. And low momentum exposure is rooted in holding stocks that are not currently on a winning streak and instead holding those that managers believe are undervalued. The strategy has a solid parent that earns an Above Average Parent Pillar rating. This firm has had a favorable lineup success ratio and overall low fees. Finally, the team managing the passive strategy earns the strategy an Average People Pillar rating.

Morningstar's evaluation of this security's process aims to determine the likelihood that it will outperform its Morningstar Category benchmark on a risk-adjusted basis over the long term. JPMorgan Divers Ret US Small Cap Eq ETF earns a High Process Pillar rating.

This strategy tends to hold smaller, more undervalued companies than its average peer in the Small Blend Morningstar Category. Analyzing additional factors, the managers have shown a willingness to take risks, demonstrated by the portfolio's high volatility exposure. Such stocks tend to rise faster and fall harder than the broad market. High volatility exposure can help performance in bull markets but hurt it in bear markets. The strategy is also historically more exposed compared with Morningstar Category peers. This strategy has exposure to high-momentum stocks. Momentum strategies wager that market outperformers will continue to outperform, and laggards will continue to lag. But when compared with category peers, the strategy historically has had less exposure. Additionally, this strategy is about as exposed to the yield factor as other equity strategies. However, the portfolio has more exposure than its Morningstar Category 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 consumer defensive and basic materials relative to the average peer in its category by 5.0 and 4.6 percentage points in terms of assets, respectively. The sectors with low exposure compared to their category peers are financial services and industrials, underweight the average by 7.2 and 4.6 percentage points of assets, respectively. The portfolio is composed of 597 holdings and is diversified among those holdings. In its most recent portfolio, 4.0% of the strategy's assets were concentrated in the top 10 fund holdings, as opposed to the category average's 26.0%.

JPMorgan’s team is valuable but does not stand out as one of the industry's best, warranting an Average People Pillar rating. There’s a core bench of four managers listed on the fund: Yazann Romahi, Natalia Zvereva, Joe Staines, Yegang(Steven) Wu. Together, they manage a total of three strategies, with solid long-term prospects. The strategies average a Gold asset-weighted combined Morningstar Analyst and Quantitative Rating, indicating a position to deliver positive alpha relative to the category median in aggregate. The team has faced turnover as of late, with Alistair Lowe leaving within the last within the last month. Even though it is a passive fund, high turnover can still hinder the effectiveness of the investment process.

A well-resourced, thoughtful, and disciplined steward of client assets, JPMorgan Asset Management maintains an Above Average Parent rating.

As of 2022, this investment stalwart manages more than USD 2.5 trillion in AUM. Composed of various cohorts globally and a diverse set of 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 has had a strong short-term track record. Over the past three years, it beat the category index, the Russell 2000 Index, by an annualized 4.8 percentage points, and outperformed its average peer by 3.6 percentage points. And more importantly, when extended to a longer time frame, the strategy came out ahead. On a five-year basis, it outperformed the index by an annualized 2.9 percentage points.

The risk-adjusted performance only continues to make a case for this fund. The share class outstripped 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 come with a bumpier ride for investors. This strategy took on similar risk as the benchmark, as measured by standard deviation. However, the share class proved itself ineffective as it was unable to generate alpha, over the same period, against the category group index: a benchmark that encapsulates the performance of the broader asset class.

Returns vary from period to period, but expenses are always subtracted. It is good practice to weigh them heavily in any investment evaluation. This share class is in the cheapest quintile of its Morningstar Category. Its low fee, considered jointly with the fund’s People, Process, and Parent Pillars, indicates that this share class is well-positioned to generate positive alpha versus its category benchmark, explaining its Morningstar Quantitative Rating of Gold.