JPMorgan Small Cap Growth C OSGCX

Fees are a weakness here. The strategy's lofty fees are a high hurdle to clear, as it is priced within the most expensive quintile among peers.

The strategy's effective investment philosophy supports an Above Average Process Pillar rating. Independent of the rating, analysis of the strategy's portfolio shows it has maintained an overweight in liquidity exposure and an underweight in quality exposure compared with category peers. High liquidity exposure is attributed to stocks with a high trading volume, lending managers more flexibility. And a low quality exposure is rooted in stocks with higher financial leverage and lower profitability. The management team's large personal investment in the strategy helps it earn 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 Small Cap Growth Fund 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 56%. 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 excellent risk-adjusted performance, as shown by its average 10-year Morningstar Rating of 3.3 stars, also contributes to 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 is similar to its Small Growth category peers in terms of market-cap and style exposure. Examining additional factor exposure, this fund has constantly tilted toward stocks with higher trading volumes than its Morningstar Category Peers over the past 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 suffer from a significant loss. In recent months, the strategy was more exposed to the Liquidity factor compared with its Morningstar Category peers as well. This strategy has also tilted toward low-quality stocks, companies with higher financial leverage and lower profitability over peers in recent years. Such positions do not tend to provide much ballast for a portfolio. Similarly, in recent months, the strategy also had less exposure to the Quality factor than peers. Additionally, the managers have consistently taken on more risk, demonstrated by higher volatility exposure than peers. Such stocks tend to rise faster and fall harder than the broad market. High-volatility exposure contributes to stronger performance during bull markets, but often at the cost of losing more during downturns. In this month, the strategy also had more exposure to the Volatility factor 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 technology and consumer cyclical relative to the category average by 4.6 and 3.1 percentage points, respectively. The sectors with low exposure compared to category peers are financial services and industrials, with financial services underweighting the average portfolio by 5.5 percentage points of assets and industrials similar to the average. The strategy owns 134 securities and its assets are more dispersed than peers in the category. In particular, 17.6% of the strategy's assets are concentrated in the top 10 fund holdings, as opposed to the category’s 26.3% average. And in closing, in terms of portfolio turnover, looking at year-over-year movements, 33% of the fund's holdings have changed, whether through increasing, decreasing, or changing a position.

Eytan M. Shapiro, the longest-tenured manager on the strategy, provides strong guidance, bringing forward over 25 years of listed portfolio management experience. The average Morningstar Rating of the strategies they currently manage is 2.3 stars, demonstrating underwhelming risk-adjusted performance. Eytan M. Shapiro is supported by an experienced team, being able to draw on three additional listed managers, who average 19 years of listed portfolio management experience. As a team, they manage two investment vehicles together, with a Silver asset-weighted average Morningstar Medalist Rating, indicating the potential to deliver positive alpha in aggregate. With at least one manager investing$ 1 million or more in this offering, investors can have some assurance that the team's interests are aligned with theirs.

Note: The People Pillar rating is indirectly assigned by an analyst. At least one of the managers on this fund manages a different product rated by an analyst. The analyst-assigned People Pillar rating(s) for these managers are combined with algorithmic scores for any non-covered managers on a tenure-weighted basis.

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.

It has been subpar over the short term but successful over the long term. Over the past five years, the fund underperformed the category index, the Russell 2000 Growth Index, by 57 basis points, and trailed its average peer by 1.5 percentage points. More importantly, on a 10-year basis, this share class outperformed the index by an annualized 1.0 percentage points.

The share class outstripped the index with a higher Sharpe ratio, a measure of risk-adjusted return, over the trailing 10-year period. However, these returns were accompanied by additional risk, with a standard deviation of 22.3% compared to the benchmark's 20.8%.

This share class charges a fee that places it in its Morningstar Category's most expensive quintile. Despite this fee, the fund’s People, Process, and Parent Pillars build confidence that this share class should be able to generate positive alpha versus its category benchmark, garnering a Morningstar Medalist Rating of Bronze.