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JPMorgan Diversified Return US Eq ETF JPUS

Quantitative rating as of
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Morningstar’s Analysis JPUS

Quantitative rating as of .

The Morningstar Quantitative Rating for funds is analogous to the rating our analyst might assign to the fund if they covered it.

Our analysts assign Silver ratings to strategies that they have high conviction will outperform a relevant index, or most peers, over a market cycle.

Summary

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JPMorgan Diversified Return US Eq ETF’s strong process and parent firm are the foundation for this strategy's Morningstar Quantitative Rating of Silver. The portfolio maintains a sizable cost advantage over competitors, priced within the lowest fee quintile among peers.

The strategy's investment process inspires confidence and earns an Above Average Process Pillar rating. Independent of the rating, analysis of the strategy's portfolio shows it has maintained a significant overweight position in liquidity exposure and quality exposure compared with category peers. High liquidity exposure is attributed to stocks with a high trading volume, lending managers more flexibility. And a high quality exposure is rooted in holding stocks with low financial leverage and strong returns on equity. The strategy belongs to a strong asset-management firm that earns an Above Average Parent Pillar rating. The firm, for example, has had a favorable lineup success ratio and overall attractive fees. Finally, the team managing the passive strategy earns the strategy an Average People Pillar rating.

Process

| Above Average |

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 Diversified Return US Eq ETF earns an Above Average Process Pillar rating.

This strategy skews toward smaller, more growth-oriented companies compared with its average peer in the Large Value Morningstar Category. Looking at additional factor exposure, this fund tilts toward stocks with high trading volumes. Such stocks may have less potential upside than illiquid holdings, but they are easier to trade during market downturns. The strategy is also historically more exposed compared with Morningstar Category peers. The managers do not tilt toward or away from the quality factor; the current portfolio has about average exposure compared with the equity strategies universe. High-quality stocks are companies that are consistently profitable, growing, and have solid balance sheets. But when compared with category peers, the strategy historically has had more exposure. Additionally, the managers have shown an underweight risk tilt, demonstrated by low volatility exposure. 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 lag in bull markets. However, the portfolio has less 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 real estate and basic materials relative to the average peer in its category by 5.1 and 5.0 percentage points in terms of assets, respectively. The sectors with low exposure compared to their category peers are financial services and healthcare, underweight the average by 10.4 and 3.2 percentage points of assets, respectively. The portfolio is positioned across 360 holdings and assets are more dispersed than peers in the category. In particular, 4.7% of the portfolio's assets are concentrated in the top 10 fund holdings, compared to the category average's 33.3%.

People

| Average |

JPMorgan’s team is comparable to peers, resulting in an Average People Pillar rating. There’s a core bench of four managers listed on the fund: Yazann Romahi, Yegang(Steven) Wu, Alistair Lowe, Joe Staines. Experience on the team is abundant, with 13 years of average portfolio management experience. Together, they manage a total of four 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.

Parent

| Above Average |

J.P. Morgan Asset Management’s strong investment culture, which shows through its long-tenured, well-aligned portfolio managers and deep analytical resources, supports a renewed Above Average Parent rating.

Across asset classes and regions, the firm's diverse lineup features many Morningstar Medalists, such as its highly regarded U.S. equity income strategy that’s available globally. There's been some turnover in the multi-asset team recently, but it remains deeply resourced and experienced. Manager retention and tenure rates, and degree of alignment for U.S. mutual funds compare favorably among the competition. Managers' compensation emphasizes fund ownership over stock ownership, which is distinctive for a public company.

The firm continues to streamline its lineup and integrate its resources further. For instance, in late 2019, the multi-asset solutions division combined with the passive capabilities. The firm hasn’t launched trendy offerings as it’s mostly expanded its passive business lately, but acquisition-related redundancies and more hazardous launches in the past weigh on its success ratio, which measures the percentage of funds that have both survived and outperformed peers. Fees are regularly reviewed downward globally; they're relatively cheaper in the U.S. than abroad. Also, the firm is building its ESG capabilities and supports distinctive initiatives on diversity.

Performance

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This share class' long-term performance is mixed depending on the yardstick used. It has provided mixed returns compared with peers, but better returns compared with the category benchmark. Over the trailing five-year period, this share class underperformed the category's average return by an annualized 28 basis points. But when expanded to a seven-year period, it outperformed the average by 23 basis points. However, it found more success when compared with the category index, Russell 1000 Value Index, where it led by an annualized 1.6 percentage points over the same seven-year period.

When adjusting for risk, this fund is competitive. The share class had a higher Sharpe ratio, a measure of risk-adjusted return, than the index 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. However, 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.

Price

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It is imperative to evaluate fees, which compound over time and reduce returns. This share class is within the cheapest quintile of its Morningstar Category. Its affordable expense ratio, paired with the fund’s People, Process, and Parent Pillars, results in a judgment that this share class has high potential to deliver positive alpha relative to its category benchmark, leading to its Morningstar Quantitative Rating of Silver.