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JPMorgan BetaBuilders Japan ETF BBJP

Quantitative rating as of | See JPMorgan Investment Hub
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Morningstar’s Analysis BBJP

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 Gold ratings to strategies that they have the most conviction will outperform a relevant index, or most peers, over a market cycle.

Summary

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JPMorgan BetaBuilders Japan ETF’s strong process and parent firm support this strategy's Morningstar Quantitative Rating of Gold. The portfolio maintains a cost advantage over competitors, priced within the cheapest fee quintile among peers.

The strategy's investment process inspires confidence and earns a High Process Pillar rating. Independent of the rating, analysis of the strategy's portfolio shows it has maintained an underweight position in quality exposure and volatility exposure compared with category peers. Low quality exposure is attributed to stocks with higher financial leverage and lower profitability. And low volatility exposure is rooted in stocks that have a lower standard deviation of returns. The strategy has a solid parent that earns an Above Average Parent Pillar rating. This firm has had a high lineup success ratio and overall affordable fees. Finally, the team managing the passive strategy earns the strategy an Average People Pillar rating.

Process

| High |

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, consumer cyclical and healthcare, that are similar to the average portfolio in the category. The sectors with low exposure compared to their category peers are consumer defensive and communication services; however, the allocations are similar to the average category portfolio. The portfolio is composed of 276 holdings and assets are more dispersed than the typical peer in the category. In the most recent disclosure, 21.4% of the portfolio's assets were concentrated in the top 10 fund holdings, compared to the category’s 24.1% average. And finally, in terms of portfolio turnover, this portfolio turns over its holdings less quickly than peers, potentially leading to lower costs for investors and eliminating a drag on performance.

People

| Average |

JPMorgan’s team is valuable but does not stand out as one of the industry's best, warranting an Average People Pillar rating. There are four managers listed on the fund: Michael Loeffler, Oliver Furby, Alex Hamilton, Nicholas D’Eramo. The team is well equipped, with an average of 11 years of portfolio management experience. Together, they manage a total of eight strategies, with solid long-term prospects. The strategies average a Silver 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 |

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 cohorts globally and a diverse set of 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.

Performance

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This share class has had an underwhelming short-term track record. Over the past two years, it trailed the category index, the MSCI Japan Index, by an annualized 23 basis points, and underperformed the category average by 2.5 percentage points. And more importantly, when extended to a longer time frame, the strategy was bested by the index. On a four-year basis, it underperformed the index by an annualized 22 basis points.

Even when adjusting for risk, the fund does not hold up. The share class failed to beat the index with a lower Sharpe ratio, a measure of risk-adjusted returns, 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.

Price

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It is important for investors to be on guard for fees, as they are essentially negative alpha. This fund lands in the cheapest quintile of its Morningstar Category. Its attractive expense ratio, paired with the fund’s People, Process, and Parent Pillars, suggests 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.