JPMorgan BetaBuilders Japan ETF BBJP ETF Analysis

JPMorgan BetaBuilders Japan ETF’s strong process and parent firm support this strategy's Morningstar Quantitative Rating of Gold. The portfolio maintains a sizable 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 underweight position in volatility exposure and quality exposure compared with category peers. Low volatility exposure is attributed to stocks with a lower standard deviation of returns. And a low quality exposure is rooted in stocks with higher financial leverage and lower profitability. 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 affordable 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 BetaBuilders Japan ETF earns a High Process Pillar rating. The investment strategy as stated in the fund's prospectus is:

The investment seeks investment results that closely correspond, before fees and expenses, and to the performance of the Morningstar® 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 is a free float adjusted market capitalization weighted index which consists of stocks traded primarily on the Tokyo Stock Exchange or the Nagoya Stock Exchange. The fund may invest up to 20% of its assets in exchange-traded futures and forward foreign currency contracts to seek performance that corresponds to the underlying index.

The portfolio has allocations in its top 2 sectors, healthcare and consumer cyclical, that are similar to the average portfolio in the category. The sectors with low exposure compared to their category peers are financial services and consumer defensive; however, the allocations are similar to the average category portfolio. The strategy owns 277 securities and is diversified among those holdings. In its most recent portfolio, 21.9% of the portfolio's assets were concentrated in the top 10 fund holdings, compared to the category’s 24.8% average. And finally, in terms of portfolio turnover, looking at year-over-year movements, 4% of the fund's holdings have changed, whether through increasing, decreasing, or changing a position.

JPMorgan’s team is comparable to peers, resulting in an Average People Pillar rating. There are four managers listed on the fund: Alex Hamilton, Oliver Furby, Nicholas D’Eramo, Michael Loeffler. Experience on the team is abundant, with 11 years of average portfolio management experience. Together, they manage a total of eight strategies, with a Silver asset-weighted average combined Morningstar Analyst and Quantitative 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.

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 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.

This share class has an underwhelming short-term track record. Over the past two-year period, it trailed the category index, the MSCI Japan Index, by an annualized 44 basis points, and underperformed its average peer by 3.3 percentage points. And more importantly, when extended to a longer time frame, the strategy fell behind the index. On a four-year basis, it underperformed the index by an annualized 34 basis points.

Even when adjusting for risk, the fund does not hold up. The share class had a lower Sharpe ratio, a measure of risk-adjusted returns, than the index over the trailing three-year period. But notably, these subpar risk-adjusted results have not come with a rockier ride for investors. This strategy took on similar risk as the benchmark, as measured by standard deviation. Finally, 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.

It is critical to evaluate expenses, as they come directly out of returns. This fund is within the cheapest quintile of its Morningstar Category. Its attractive fee, taken together with the fund’s People, Process, and Parent Pillars, indicates that this share class is well-positioned to generate positive alpha compared with the lesser of its median category peer or the category benchmark, leading to its Morningstar Quantitative Rating of Gold.