JPMorgan BetaBuilders MSCI US REIT ETF BBRE

JPMorgan BetaBuilders MSCI US REIT ETF’s strong process and parent firm underpin this strategy's Morningstar Quantitative Rating of Gold. The portfolio maintains a cost advantage over competitors, priced within the lowest 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 overweight in yield exposure and liquidity exposure compared with category peers. High yield exposure is attributed to holding high dividend-paying or buyback stocks, and is suitable for income seekers outside of fixed-income. And a high liquidity exposure is rooted in stocks with higher trading volumes, lending managers more flexibility. The strategy belongs to a strong asset-management firm that earns an Above Average Parent Pillar rating. The firm, for example, 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 index on a risk-adjusted basis over the long term. JPMorgan BetaBuilders MSCI US REIT 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 MSCI US 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 has allocations in its top 2 sectors, real estate and healthcare, that are similar to the average portfolio in the category. The sectors with low exposure compared to their category peers are consumer cyclical and industrials; however, the allocations are similar to the average category portfolio. The portfolio is positioned across 132 holdings and is diversified among those holdings. In its most recent portfolio, 43.5% of the strategy's assets were concentrated in the top 10 fund holdings, compared to the category average's 59.0%. And in closing, 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.

JPMorgan’s team is comparable to peers, resulting in an Average People Pillar rating. There’s a core bench of four managers listed on the fund: Nicholas D’Eramo, Michael Loeffler, Alex Hamilton, Oliver Furby. 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.

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.

This share class has had inconsistent outcomes, requiring closer analysis. Narrowing in on the past two-year period, it trailed the category index, the S&P United States REIT Index, by an annualized 25 basis points, but outperformed the category average by 2.5 percentage points. But more significantly, when extended to a longer time frame, the strategy came out ahead. On a four-year basis, it outperformed the index by an annualized 15 basis points.

When risk is properly accounted for, the strategy is not any more compelling. The share class trailed the index with a lower Sharpe ratio, a measure of risk-adjusted returns, over the trailing three-year period. However, this strategy stayed in line with the benchmark's 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 are subtracted directly out of returns. This fund sits in the cheapest quintile of its Morningstar Category. Its competitive fee, considered jointly with the fund’s People, Process, and Parent Pillars, indicates that this share class is well-positioned to generate positive alpha against the lesser of its median category peer or the category benchmark, leading to its Morningstar Quantitative Rating of Gold.