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JPMorgan US Quality Factor ETF JQUA

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Morningstar’s Analysis JQUA

Medalist rating as of .

JPMorgan US Quality Factor ETF’s management team is rated Average, but a solid investment process still helps this strategy retain its Morningstar Medalist Rating of Gold.

Our research team assigns Gold ratings to strategies that they have the most conviction will outperform a relevant index, or most peers, over a market cycle on a risk-adjusted basis.

JPMorgan US Quality Factor ETF’s management team is rated Average, but a solid investment process still helps this strategy retain its Morningstar Medalist Rating of Gold.

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Morningstar Manager Research

Summary

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

The strategy's sensible investment philosophy merits a High Process Pillar rating. Independent of the rating, analysis of the strategy's portfolio shows it has maintained an overweight in liquidity exposure and yield exposure compared with category peers. High liquidity exposure is attributed to stocks with a high trading volume, lending managers more flexibility. 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.

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Morningstar's evaluation of this security's process aims to determine the likelihood that it will outperform its Morningstar Category index on a risk-adjusted basis over the long term.

null Morningstar Manager Research

Morningstar Manager Research

Process

High

JPMorgan US Quality Factor ETF earns a High Process Pillar rating.

The most meaningful contributor to 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. Excellent risk-adjusted performance also bolsters 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. The parent firm's five-year risk-adjusted success ratio of 57% supports the rating. 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 compelling success ratio suggests that this firm does well for investors and that this fund may benefit from that.

This strategy, over time, has preferred smaller market-cap companies, compared with others in the Large Blend Morningstar Category. But in terms of investment style, it is on par with peers. Examining additional factor exposure, this strategy has held more highly liquid stocks compared to Morningstar Category Peers in the past few years. This gives the managers more flexibility during bear markets to sell without adversely affecting prices. In recent months, the strategy was more exposed to the Liquidity factor compared with its Morningstar Category peers as well. 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. In addition, this strategy has exhibited a tilt toward higher-volatility stocks in these years, meaning companies that have a higher historical standard deviation of returns compared with peers. Such exposure tends to pay off when markets are hot and to be costly when they are not. In this month, the strategy also had more exposure to the Volatility 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 technology by 3.2 percentage points in terms of assets compared with the category average, and its consumer cyclical allocation is similar to the category. The sectors with low exposure compared to category peers are industrials and communication services; however, the allocations are similar to the category. The portfolio is composed of 248 holdings and its assets are more dispersed than peers in the category. In particular, 21.5% of the fund’s assets are concentrated in the top 10 fund holdings, as opposed to the typical peer's 48.8%. And finally, in terms of portfolio turnover, looking at year-over-year movements, 21% of the fund's holdings have turned over, whether through increasing, decreasing, or changing a position.

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JPMorgan’s team is valuable but does not stand out as one of the industry's best, warranting an Average People Pillar rating.

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Morningstar Manager Research

People

Average

There’s a deep bench of five managers listed on the fund. Together, they manage a total of two 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.

Rated on Published on

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

Associate Director Emory Zink

Emory Zink

Associate Director

Parent

Above Average

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.

Rated on Published on

This share class has a successful short-term track record.

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Morningstar Manager Research

Performance

Narrowing in on the past three-year period, it beat the category index, the Russell 1000 Index, by an annualized 3.7 percentage points, and outperformed the category average by 4.6 percentage points. And more importantly, when looking across a longer horizon, the strategy outpaced the index. On a five-year basis, it led the index by an annualized 56 basis points.

The risk-adjusted performance only continues to make a case for this fund. The share class led the index with a higher Sharpe ratio, a measure of risk-adjusted return, over the trailing five-year period. Sometimes better performance is found among strategies with higher risk profiles. However, this strategy had a lower standard deviation, 17.1%, compared to the benchmark’s 18.7%. 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.

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Low-cost investments routinely outperform high-cost investments.

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Morningstar Manager Research

Price

Thus, assessing cost is a critical step in any investment evaluation. This share class is within the cheapest quintile of its Morningstar Category. Its affordable expense ratio, 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 Medalist Rating of Gold.

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Portfolio Holdings JQUA

  • Current Portfolio Date
  • Equity Holdings
  • Bond Holdings
  • Other Holdings
  • % Assets in Top 10 Holdings 20.3
Top 10 Holdings
% Portfolio Weight
Market Value USD
Sector

Meta Platforms Inc Class A

2.76 109.8 Mil
Communication Services

Alphabet Inc Class A

2.36 93.8 Mil
Communication Services

NVIDIA Corp

2.13 84.6 Mil
Technology

Microsoft Corp

2.03 80.9 Mil
Technology

Berkshire Hathaway Inc Class B

1.97 78.4 Mil
Financial Services

Apple Inc

1.95 77.5 Mil
Technology

Visa Inc Class A

1.92 76.6 Mil
Financial Services

Broadcom Inc

1.91 75.9 Mil
Technology

Mastercard Inc Class A

1.72 68.4 Mil
Financial Services

Johnson & Johnson

1.58 62.9 Mil
Healthcare