JPMorgan ActiveBuilders EM Eq ETF JEMA

The portfolio maintains a sizable cost advantage over competitors, priced within the cheapest fee quintile among peers.

The management team's considerable industry experience drives an Above Average People Pillar rating for the strategy. The strategy's investment approach stands out and earns an Above Average Process Pillar rating. Independent of the rating, analysis of the strategy's portfolio shows it has maintained an overweight liquidity exposure and yield exposure compared with category peers. High liquidity exposure is attributed to stocks with a high trading volume, lending managers more flexibility. And a high yield exposure is rooted in holding high dividend-paying or buyback stocks. The strategy's parent organization earns the firm an Above Average Parent Pillar rating, and this rating is inherited from vehicles belonging to the same branding entity and is indirectly assigned by an analyst.

JPMorgan ActiveBuilders EM Eq ETF earns an Above Average Process Pillar rating.

The main driver of the rating is the parent firm's five-year risk-adjusted success ratio of 59%. 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. The firm's five-year retention rate of 83% also strengthens the process. Lastly, the process is limited by being an actively managed strategy. Historical data, like Morningstar's Active/Passive Barometer, finds that actively managed funds have generally underperformed their passive counterparts, especially over longer time horizons.

This strategy, over time, has opted for smaller market-cap companies, compared with others in the Diversified Emerging Mkts Morningstar Category. But in terms of style (value/growth) exposure, it does not have much of a bias and resembles the category's typical portfolio. Looking at additional factor exposure, this strategy has consistently tilted toward companies with relatively higher trading volumes in the last few years. More-liquid assets contribute to more-flexible exit strategies without price changes and tend to be a ballast during market selloffs. For example, if the portfolio faces successive redemptions in a short period of time, it will be less likely to experience a significant loss. In recent months, the strategy was more exposed to the Liquidity factor compared with its Morningstar Category peers as well. The managers have also tended to overweight yield during recent years, shown by the portfolio's high exposure to dividends or buybacks. High-yield stocks tend to be connected to more mature companies earning enough cash to return some to shareholders. At times, however, extreme market pressure can force them to cut their dividends, which hurts stock performance. Compared with category peers, the strategy also had more exposure to the Yield factor in the most recent month. Additionally, the strategy has constantly maintained a defensive tilt, with exposure to high-quality stocks. High exposure to the quality factor means holding companies that are consistently profitable, growing, and have solid balance sheets. In recent months, however, the strategy had less Quality factor exposure over its peers. More information on a fund and its respective category's factor exposure can be found in the Factor Profile module within the Portfolio section.

The portfolio has allocations in its top two sectors, consumer defensive and financial services, that are similar to the category. The sectors with low exposure compared to category peers are basic materials and healthcare; however, the allocations are similar to the category. The portfolio is composed of 526 holdings and is diversified among those holdings. In its most recent portfolio, 21.2% of the fund’s assets were concentrated in the top 10 fund holdings, compared to the category average's 25.7%. And finally, in terms of portfolio turnover, this fund trades less regularly than the typical peer in its category, which may result in a lower cost to investors.

The main contributor to the rating is its parent firm's five-year success ratio of 58%. The measure indicates the percentage of a firm's funds that survived and outperformed their respective category's median return for the period. The stability of talent across its parent firm also contributes to the rating. The firm's asset-weighted manager tenure of 16 years demonstrates its ability to retain portfolio managers. Lastly, the rating is limited by the managers' failure to consistently outperform peers at the funds they run, as measured by their combined three-year manager excess returns.

Anuj Arora’s veteran status, with 21 years of portfolio management experience, brings a wealth of experience to the table. The average Morningstar Rating of the strategies they currently manage is 2.9 stars, reflecting below-average risk-adjusted performance relative to category peers. Although the team is small, it is a solid supporting cast. Together, the three listed managers boast more than an average of 12 years of portfolio management experience. None of the managers here invest any money in the strategy, which is disappointing, as such investments help align managers' interests with fundholders.

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.

However, with such a short time frame, it is difficult to draw a conclusion on its prospects until it has completed a full market cycle. In the last two years, this share class has lost 12.7%, compared with the-11.0% return of the category index, the MSCI Emerging Markets Index, for the same period. It also trailed peers as the category’s average loss for the period was 10.5%.

It is good practice to weigh them heavily in any investment evaluation. This share class sits in the cheapest quintile of its Morningstar Category. Its attractive fee, in conjunction with the fund’s People, Process, and Parent Pillars, suggests that this share class should be able to deliver positive alpha versus its category benchmark, leading to its Morningstar Medalist Rating of Silver.