JPMorgan US Value I VGIIX

J.P. Morgan Asset Management announced on Sept. 12, 2023, that Clare Hart, lead manager for JPMorgan Equity Income and JPMorgan U.S. Value, will retire in the fall of 2024. Until that time, she will continue to serve as a portfolio manager alongside Andrew Brandon and David Silberman, who became listed portfolio managers on the funds in late 2019. Hart has been a listed manager at both funds since 2004 and has been a driving force behind their success. This impending manager change is thus a significant development, so both strategies' Morningstar Medalist Ratings are now Under Review.

The announcement that Clare Hart will retire in the fall of 2024 means this strategy's Morningstar Medalist Rating is now Under Review. The text in the sections below was published on May 3, 2023.

JPMorgan U.S. Value's talented leadership and time-tested approach earn the strategy's two cheapest share classes a Morningstar Medalist Rating of Gold, while the rest receive Silver.

Management here is among the industry's most impressive. Lead manager Clare Hart has deftly guided this value-oriented strategy across multiple market cycles since taking the helm in March 2004. She ably managed the strategy solo for well over a decade but bolstered her investment team in recent years. In 2019, Hart added then-analyst Andrew Brandon and J.P. Morgan's corporate governance expert David Silberman as comanagers here and on sibling strategy JPMorgan Equity Income HLIEX to help oversee the sizable $90 billion she managed across charges as of March 2023. On both strategies, the three managers work closely with two dedicated analysts and draw upon the firm’s well-resourced central analyst bench for support.

The team's patient and well-tested approach has considerable appeal. Similar to the equity-income fund, it focuses here on competitively advantaged firms with strong balance sheets, reliable cash flows, and topnotch managements trading at attractive prices. Unlike its sibling, however, stocks need not pay a dividend, and the managers have more leeway to invest in underappreciated or cyclical firms whose somewhat less-pristine fundamentals offer appealing risk/reward prospects. This strategy's 85- to 110-stock portfolio tends to have modestly lower quality characteristics than JPMorgan Equity Income but still much higher than most large-value Morningstar Category rivals. As of March 2023, the portfolio kept more of its assets in companies with a wide Morningstar Economic Moat Rating than nearly four fifths of its peers. Meanwhile, it included narrow-moat stocks such as Advanced Micro Devices AMD and Monster Beverage Corp MNST, whose lack of a dividend disqualifies them from its sibling's portfolio.

Hart's consistently good stock selection and focus on durable business models has made for an enviable long-term track record. On her watch, the U.S.-domiciled mutual fund's institutional share class' monthly rolling three-year returns through April 2023 beat the Russell 1000 Value Index 84% of the time.

As at sibling strategy JPMorgan Equity Income HLIEX, Hart here scours the U.S. large-cap universe for firms with consistent earnings, high returns on invested capital, conservative financials, and strong management teams. Unlike its sibling, however, there is no dividend-yield requirement here, and the managers have more flexibility to dip into cyclicals such as Autozone AZO and pounce on beaten-up stocks such as Meta Platforms FB.

Hart won't pay too large a premium for stocks, quality or otherwise. Valuations are critical to buy-and-sell decisions. Depending on a stock’s industry characteristics, she'll assess a variety of its price and enterprise value multiples to evaluate its worth.

When constructing the 85- to 110-stock portfolio, Hart typically caps new entrants at 5% of assets each but doesn’t place a hard limit on older positions. She generally maintains some exposure to each of the Russell 1000 Value Index's sectors, but relative weightings have varied up to 10 percentage points.

Hart's patient approach has kept trading to a minimum. Annual turnover has ranged from 14% to 32% since 2018, versus about 36% to 46% for the large-value category active peer median.

The team generally invests heavily in financial-services stocks. Within that sector, it typically spreads bets across industries. As of March 2023, for example, the portfolio held diversified banks such as Wells Fargo WFC, Bank of America BAC, and Citigroup C; capital markets firms such as Morgan Stanley MS, Charles Schwab SCHW, and Goldman Sachs GS; and insurance companies such as Chubb CB, Hartford HIG, and MetLife MET, among others. It also generally favors consumer cyclical and industrials stocks and keeps investments relatively light in the real estate, communications services, and utilities sectors.

The team's search for competitively advantaged businesses typically shows in the portfolio's relatively high-quality metrics. The portfolio's average returns on invested capital tend to be higher than the Russell 1000 Value Index's, and it generally has a hefty stake in companies with economic moats. As of March, for instance, the portfolio's 46% allocation to companies with a wide moat rating was 7 percentage points higher than the benchmark's and more than nearly 80% of large-value category peers. But it hasn't paid too large a premium for such stocks: The portfolio's average valuation multiples (such as price/earnings) were mostly in line with the benchmark's.

Lead manager Clare Hart joined J.P. Morgan in 1999 and took the U.S. mutual fund's helm in March 2004. In 2019, she added two members to the management squad: Andrew Brandon in February and David Silberman in November. Bolstering the roster made sense because Hart had previously overseen an enormous asset base alone. Brandon has worked with Hart as an analyst since 2012, while Silberman, a 30-year firm veteran, previously headed the firm's equity investment director and corporate governance teams globally. Brandon and Silberman also became Hart's comanagers on JPMorgan Equity Income HLIEX in November 2019. That portfolio has significant overlap with this one but also has a dividend yield requirement and slightly more-stringent quality constraints.

The managers work alongside two dedicated analysts and have broader firmwide analytical support. Tony Lee joined the team in 2018, and Lerone Vincent joined in early 2022. Vincent replaced Shilpee Raina, who left to join Silver-rated JPMorgan U.S. Equity JMUEX as a comanager in November 2021. Both Lee and Vincent served in the firm’s core analyst group before joining this team.

Management invests alongside fundholders here (and on JPMorgan Equity Income): Hart and Brandon invest more than $1 million here each, and Silberman invests at least $500,000.

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.

From her start in March 2004 through April 2023, the institutional shares' 8.4% annualized return beat the Russell 1000 Value Index and large-value category norm by 0.7 and 1.4 percentage points, respectively. Its excess results were remarkably consistent: Its monthly rolling three-year returns beat the benchmark more than four fifths of the time. And its superior risk-adjusted results — including its Sharpe ratio — were also impressive, given its tendency toward economically sensitive sectors.

Hart's skillful execution has helped the fund keep pace with the benchmark during downturns. In fact, the fund's performance has stayed within 1.2 percentage points of the index’s during 10 of 11 market downturns of 10% or more during Hart's tenure (it did 4.7 percentage points better during an early-2009 selloff). It has tended to outperform when markets rally. For instance, it beat the benchmark from the March 23, 2020, market nadir through December 2020, gaining a cumulative 59.6% versus the index's 57.4% rise.

The fund was a strong performer during the trailing 12 months through April. Its 5.2% return beat the index's 1.2% gain and the category norm's 1.6%. Well-timed bets in specialty chemicals company Axalta Coating Systems AXTA and semiconductor manufacturer Analog Devices ADI contributed the most to its recent outperformance.