JPMorgan BetaBldrs 1-5 Yr US Aggt Bd ETF BBSA

The portfolio maintains a cost advantage over competitors, priced within the least expensive 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 underweight position in corporate bonds and A rated bonds compared with category peers. 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.

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.

The main 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. The parent firm's five-year risk-adjusted success ratio of 59% also strengthens the process. The measure indicates the percentage of a firm's funds that survived and outperformed their respective category's median Morningstar Risk-Adjusted Return for the period. Their commendable success ratio suggests that the firm does well for investors and that this fund may benefit from that. The firm's five-year retention rate of 84% contributes to the process as well.

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 Bloomberg Short-Term U.S. Aggregate Bond Index. The index measures the performance of U.S. dollar denominated investment grade taxable bonds with remaining effective maturities between one and five years. The fund will invest at least 80% of its assets in securities included in the underlying index.

This strategy's 12-month yield is 2.7%, lower than its average peers' 3.5%. Plus, its 30-day SEC yield (a measure similar to yield-to-maturity) sits at 5.0%. Typically, a lower yield comes with the benefit of less credit risk. The portfolio holds assets with a higher average surveyed credit quality of AA, compared with the typical peers' A, and it holds no non-investment-grade assets, despite the average peers' 2%. Strategies with less credit risk may help to provide a reliable ballast during periods of market stress. In terms of long-term interest-rate risk, this strategy is on par with peers. The longer a strategy's duration, the more sensitive it is to shifts in interest rates. This fund, with a 2.6-year duration, is expected to gain 2.6% of its net asset value if interest rates drop by 1 percentage point, and vice versa.

There’s a sizable bench of five managers listed on the fund. Together, they manage a total of two 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. The team has lacked continuity recently, with Jonathan Msika leaving in the last three months, detracting from its rating. Even though it is a passive fund, high turnover can still hinder the effectiveness of the investment process.

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 two-year period, it trailed the category index, the Bloomberg Barclays U.S. Aggregate Government/ Credit 1-3 Year Index, by an annualized 1.6 percentage points, and underperformed its average peer by 88 basis points. And more importantly, when extended to a longer time frame, the strategy's performance looks bleak. On a four-year basis, it trailed the index by an annualized 65 basis points. Although the rating does not hinge on one-year performance figures, it is notable that this share class returned 2.7%, a sizable 1.2-percentage-point loss over its average peer. This places it within the bottom 10% of its peer group.

However, adjusting for risk unveils the fund in a more complementary light. The share class had a higher Sharpe ratio, a measure of risk-adjusted return, than the index over the trailing three-year period. These strong risk-adjusted results have not come with 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.

This fund is in the cheapest quintile of its Morningstar Category. Its competitive fee, in conjunction with the fund’s People, Process, and Parent Pillars, suggests that this share class has the ability to deliver positive alpha versus the lesser of its median category peer or the category benchmark, explaining its Morningstar Medalist Rating of Gold.