JPMorgan Sustainable Infrastructure ETF BLLD

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

The strategy's investment process inspires confidence and earns an Above Average Process Pillar rating. Independent of the rating, analysis of the strategy's portfolio shows it has maintained an overweight in volatility exposure and an underweight in yield exposure compared with category peers. High volatility exposure is attributed to companies with a higher standard deviation of returns. And a low yield exposure is rooted in holding fewer stocks with high dividend or buyback yields -- instead, typically holding stocks in an early stage of development. The management team could invest more alongside the shareholders, but it still earns an Above Average People Pillar rating. 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 Sustainable Infrastructure ETF earns an Above Average Process Pillar rating.

The leading factor in the rating is the parent firm's five-year risk-adjusted success ratio of 57%. 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. The parent firm's superior risk-adjusted performance, as shown by its average 10-year Morningstar Rating of 3.3 stars, also influences the rating. 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 has tended to hold more growth stocks than others in the Infrastructure Morningstar Category. But in terms of size exposure, it is similar to the average. Analyzing additional factors, this strategy has exhibited a tilt toward high-volatility stocks or the shares of companies with histories of the higher standard deviation of returns, compared with Morningstar Category peers in the last few years. Such exposure tends to pay off when markets are hot and to be costly when they are not. In recent months, the strategy was more exposed to the Volatility factor compared with its Morningstar Category peers as well. This strategy has also leaned away from the stocks of companies with high dividend or buyback yields over these years. Its preference for stocks with lower yields may well lead to a growthier portfolio. However, growth stocks court additional risks if their forecasts do not come to fruition and are often more volatile than companies with stable dividends. Similarly, in recent months, the strategy also had less exposure to the Yield factor than peers. Given the high trading volume of holdings, this fund also holds highly liquid assets. More-liquid assets are easier to buy and sell without adversely moving their prices and tend to provide some ballast during market selloffs. They also are easier to sell to meet redemptions if a host of investors decide to leave the fund in a short period of time. In recent months, however, the strategy had less Liquidity 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 is overweight in real estate by 35.2 percentage points in terms of assets compared with the category average, and its healthcare allocation is similar to the category. The sectors with low exposure compared to category peers are industrials and energy, underweight the average by 18.6 and 7.4 percentage points of assets, respectively. The portfolio is composed of 65 holdings and is relatively concentrated. In particular, 34.5% of the fund’s assets are housed within the top 10 holdings, as opposed to the category’s 28.7% average. And finally, in terms of portfolio turnover, looking at year-over-year movements, 75% of the fund's holdings have turned over, whether through increasing, decreasing, or changing a position.

The main contributor to the rating is its parent firm's five-year success ratio of 57%. The measure indicates the percentage of a firm's funds that survived and beat their respective category's median return for the period. The firm's five-year retention rate of 81% also influences the rating. Lastly, the rating is limited by the number of months that the management team has been running this vehicle together. Since this is a newly incepted product, more time is needed to monitor the team's capability at executing the strategy.

Sara Bellenda, the longest-tenured manager on the strategy, provides strong guidance, bringing forward 19 years of listed portfolio management experience. The team is small but adequately equipped, with two other supporting listed managers. Together, the three boast nine years of average listed 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.

That said, it is too early to have a strong opinion on its prospects. In the past twelve months, this share class has returned 1.0%, mirroring the return of the category benchmark for the same period. And during that time, it mirrored its average peer's return.

This share class is within the cheapest quintile of its Morningstar Category. Its affordable fee, taken together with the fund’s People, Process, and Parent Pillars, suggests that this share class can deliver positive alpha versus its category benchmark, leading to its Morningstar Medalist Rating of Silver.