JPMorgan High Yield Research Enhanced ETF JPHY makes sense on paper but needs more time to determine its efficacy. Experience and depth balance out recent process and team changes over its brief history. It earns a Morningstar Analyst Rating of Neutral.
The team has undergone several changes from top to bottom since this strategy’s 2016 inception. James Shanahan and Alexander Sammarco, two JPMorgan high-yield veterans, provide continuity here. In October 2021, quantitative specialists Naveen Kumar and Qiewi Zhu, tasked with improving the strategy’s models, replaced Frederick Bourgoin and Bhupinder Bahra, two London-based fixed-income quant leaders who helped develop the exchange-traded fund’s initial framework. More broadly, the firm’s high-yield franchise underwent significant change beginning in 2019, combining its independent legacy Cincinnati and Indianapolis teams into one cohesive unit led by JPMorgan’s global head of high yield Rob Cook. A robust fundamental credit analyst bench supports this strategy. Relative stability over the past year is a positive sign after higher post-integration turnover brought about short-term uncertainty.
The ETF’s investment process is still unproven following an extensive overhaul. The initial framework of this strategy applied rules-based credit and liquidity screens to the ICE Bank of America U.S. High Yield Index and avoided CCC rated debt. In September 2019, the strategy began following the sector weights (including CCC debt) and duration of the Bloomberg U.S. Corporate High Yield 2% Issuer Capped Index, with the credit analysts’ fundamental research rankings and the quant team’s models driving issuer over- and underweightings. The team brought on Kumar and Zhu specifically to make the quant modeling more granular and efficient, though it is still too soon to assess the efficacy of these efforts.
Performance from October 2019 through June 2022 has not impressed. The strategy’s 1.4% annualized loss trailed the 0.3% loss of its benchmark and lagged 79% of its distinct high-yield bond Morningstar Category peers. Low fees are a plus here, but it will take more time for a reliable performance pattern to emerge.