JPMorgan BetaBldrs 1-5 Yr US Aggt Bd ETF BBSA

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 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 most important driver of the rating is that this fund tracks an index. Historical data, like 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 strengthens the process. 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 commendable success ratio suggests that the firm does well for investors and that this fund may benefit from that. The parent firm's superior risk-adjusted performance, as shown by its average 10-year Morningstar Rating of 3.3 stars, supports the rating 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 3.1%, lower than its average peers' 3.7%. Plus, its 30-day SEC yield (a measure similar to yield-to-maturity) sits at 4.5%. A lower yield tends to indicate lower credit risk. But that isn't always the case. Over the past 12 months, the average yield of the fund has been lower than the average yield of its Morningstar Category peers. The portfolio's average surveyed credit quality is on par with peers, with both the fund and the average being rated A. 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 are four managers listed on the fund: Supreet Khandate, Jan Ho, Naveen Kumar, Evan Olonoff. Together, they manage a total of two strategies, with a Silver asset-weighted average Morningstar Medalist Rating, demonstrating their potential to deliver positive alpha relative to the category median in aggregate. The team has faced turnover as of late, with Eric Isenberg leaving within the last two months. 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.

Over the past two years, it trailed the category index, the Bloomberg Barclays U.S. Aggregate Government/ Credit 1-3 Year Index, by an annualized 1.0 percentage point, and underperformed the category average by 1.1 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 59 basis points.

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. Often, higher returns are associated with more risk. However, this strategy hewed close to the benchmark's 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 sits in the cheapest quintile of its Morningstar Category. Its competitive expense ratio, considered jointly with the fund’s People, Process, and Parent Pillars, suggests that this share class should be able to deliver positive alpha versus the lesser of its median category peer or the category benchmark, leading to its Morningstar Medalist Rating of Gold.