JPMorgan BetaBuilders Dev APAC ex-JpnETF BBAX

The portfolio maintains a sizable cost advantage over competitors, priced within the lowest 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 underweight position in quality exposure and an overweight in yield exposure compared with category peers. Low quality exposure is attributed to stocks with higher financial leverage and lower profitability. 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.

JPMorgan BetaBuilders Dev APAC ex-JpnETF earns a High Process Pillar rating.

The most substantial 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 process was successful over that period. 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 beat their respective category's median Morningstar Risk-Adjusted Return for the period. Their impressive success ratio suggests that this firm does well for investors and that this fund may benefit from that.

The investment strategy as stated in the fund's prospectus is:

The investment seeks investment results that closely correspond, before fees and expenses, to the performance of the Morningstar® Developed Asia Pacific ex-Japan Target Market Exposure IndexSM. The fund will invest at least 80% of its assets in securities included in the underlying index. The underlying index targets 85% of the stocks traded on the primary exchanges in each country or region by market capitalization, and and primarily includes large-and mid-cap companies.

The portfolio is overweight in financial services and basic materials relative to the category average by 13.5 and 9.7 percentage points, respectively. The sectors with low exposure compared to category peers are technology and consumer cyclical, underweight the average by 21.4 and 8.9 percentage points of assets, respectively. The strategy owns 121 securities and is relatively top-heavy. Of the strategy's assets, 45.0% are concentrated within the top 10 holdings, as opposed to the typical peer's 29.9%. And in closing, in terms of portfolio turnover, looking at year-over-year movements, 6% of the fund's holdings have changed, whether through increasing, decreasing, or changing a position.

There are four managers listed on the fund: Michael Loeffler, Nicholas D’Eramo, Oliver Furby, Alex Hamilton. Experience on the team is abundant, with 12 years of average portfolio management experience. Together, they manage a total of eight strategies, with a Silver 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.

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.

Narrowing in on the past three-year period, it beat the category index, the MSCI All Countries Far East ex Japan Index, by an annualized 11.3 percentage points, and outperformed its average peer by 7.2 percentage points. And more importantly, when looking across a longer horizon, the strategy outpaced the index. On a five-year basis, it outperformed the index by an annualized 3.7 percentage points.

The risk-adjusted performance only continues to make a case for this fund. 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 period, against the category group index: a benchmark that encapsulates the performance of the broader asset class.

Thus, assessing cost is a critical step in any investment evaluation. This fund sits in the cheapest quintile of its Morningstar Category. Its low expense ratio, considered jointly with the fund’s People, Process, and Parent Pillars, indicates that this share class has high potential to deliver positive alpha against the lesser of its median category peer or the category benchmark, leading to its Morningstar Medalist Rating of Gold.