JPMorgan BetaBuilders MSCI US REIT ETF BBRE

The portfolio maintains a 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 a significant overweight position in yield exposure and quality exposure compared with category peers. High yield exposure is attributed to holding more stocks with high dividend or buyback yields. And a high quality exposure is rooted in holding stocks with low financial leverage and strong returns on equity. 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 MSCI US REIT ETF earns a High Process Pillar rating.

The most important driver of 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. The parent firm's five-year risk-adjusted success ratio of 57% also influences 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 impressive success ratio suggests that the firm does well for investors and that this fund may benefit from that. Impressive risk-adjusted performance also supports the process, as shown by the fund's five-year alpha calculated relative to the category index, which suggests the process was successful over that period.

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 MSCI U.S. REIT Custom Capped Index. 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-cap weighted index designed to measure the performance of U.S. equity real estate investment trust ("REIT") securities. The fund may invest up to 20% of its assets in exchange-traded futures to seek performance that corresponds to the underlying index.

The portfolio is overweight in real estate by 2.6 percentage points in terms of assets compared with the category average, and its healthcare allocation is similar to the category. The sectors with low exposure compared to category peers are consumer cyclical and financial services; however, the allocations are similar to the category. The portfolio is positioned across 122 holdings and its assets are more dispersed than peers in the category. In particular, 49.3% of the fund’s assets are concentrated in the top 10 fund holdings, compared to the category’s 59.9% average.

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 solid long-term prospects. The strategies average a Silver 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 trailed the category index, the S&P United States REIT Index, by an annualized 16 basis points, but outperformed the category average by 2.3 percentage points. Although more significantly, when looking across a longer horizon, the strategy failed to differentiate itself. On a five-year basis, it matched the index.

The risk-adjusted performance makes 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. Notably, these strong risk-adjusted results have not come with more volatility 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.

It is good practice to weigh them heavily in any investment evaluation. This fund is in the cheapest quintile of its Morningstar Category. Its competitive fee, paired 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 Medalist Rating of Silver.