JPMorgan US Value Factor ETF JVAL

The portfolio maintains a sizable cost advantage over competitors, priced within the cheapest 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 a significant overweight position in liquidity exposure and volatility exposure compared with category peers. High liquidity exposure is attributed to stocks with a high trading volume, lending managers more flexibility. And high volatility exposure is rooted in stocks that have a higher standard deviation of returns. 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 US Value Factor ETF earns a High Process Pillar rating.

The most significant contributor to the rating is that this fund tracks an index. Historical data, such as Morningstar's Active/Passive Barometer, finds that passively managed funds have generally outperformed their active counterparts, especially over longer time horizons. Respectable risk-adjusted performance also influences the rating. 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% contributes to the process. The measure indicates the percentage of a firm's funds that survived and outperformed their respective category's median Morningstar Risk-Adjusted Return for the period. Their commendable success ratio suggests that this firm does well for investors and that this fund may benefit from that.

This strategy targets smaller plays than its peers’ average in the Large Value Morningstar Category. But in terms of style (value/growth) exposure, it does not have much of a bias and resembles the category's typical portfolio. Examining additional factor exposure, the fund has held stocks with higher trading volumes 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 exhibited a tilt toward high-volatility stocks over these years, meaning it has invested in companies that have a higher historical standard deviation of returns. Such exposure tends to pay off when markets are hot and to be costly when they are not. Compared with category peers, the strategy also had more exposure to the Volatility factor in the most recent month. During the last few years, this strategy has also tilted in favor of high-quality stocks, those that have demonstrated low financial leverage and solid return on equity. Such holdings could cause it to trail peers during economic booms, but help it better withstand busts. In this month, the strategy also had more exposure to the Quality 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 and consumer cyclical relative to the category average by 16.4 and 7.3 percentage points, respectively. The sectors with low exposure compared to category peers are financial services and energy, underweight the average by 9.6 and 4.0 percentage points of assets, respectively. The portfolio is positioned across 354 holdings and its assets are more dispersed than peers in the category. In particular, 17.7% of the strategy's assets are concentrated in the top 10 fund holdings, compared to the category’s 27.4% average. And in closing, in terms of portfolio turnover, on a year-over-year basis, 26% of the fund's holdings have turned over, 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 solid long-term prospects. The strategies average a Gold asset-weighted Morningstar Medalist Rating, indicating a position 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.

Over the past three-year period, it beat the category index, the Russell 1000 Value Index, by an annualized 1.8 percentage points, and outperformed the category average by 79 basis points. And more importantly, when extended to a longer time frame, the strategy came out ahead. On a five-year basis, it led the index by an annualized 2.4 percentage 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. However, these returns were accompanied by additional risk, with a standard deviation of 20.6% compared to the benchmark's 18.7%. 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.

This share class lands in the cheapest quintile of its Morningstar Category. Its affordable expense ratio, in conjunction with the fund’s People, Process, and Parent Pillars, indicates that this share class is well-positioned to generate positive alpha against its category benchmark, leading to its Morningstar Medalist Rating of Gold.