JPMorgan Emerging Mkts Rsrch Enh Eq R6 EMRSX

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

The management team's considerable industry experience drives an Above Average People Pillar rating for the strategy. The strategy's effective investment approach earns an Above Average Process Pillar rating. Independent of the rating, analysis of the strategy's portfolio shows it has maintained an underweight position in quality exposure and has an overweight in yield exposure compared with category peers. Low quality exposure is attributed to stocks with higher financial leverage and lower profitability. 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 Emerging Mkts Rsrch Enh Eq Fd earns an Above Average Process Pillar rating.

The most meaningful contributor to 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 impressive risk-adjusted performance, as shown by its average 10-year Morningstar Rating of 3.3 stars, also bolsters 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 prefers more value-oriented stocks compared with the average fund in its peer group, the Diversified Emerging Mkts Morningstar Category. But in terms of size exposure, it is similar to the average. Looking at additional factor exposure, this strategy tilts consistently toward stocks with lower quality or the shares of companies with more financial leverage and lower profitability, compared with Morningstar Category peers over the past few years. Lacking this ballast, the fund's prospects could rest on its ability to surpass peers during economic booms. In the latest month, the strategy was also less exposed to the Quality factor compared with Morningstar Category peers. This strategy's portfolio also has had exposure to more stocks with high dividend or buyback yields over peers in these years. 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, this strategy has demonstrated a tilt toward low-volatility stocks in these years, meaning companies with a lower historical standard deviation of returns over its peers. Such holdings can limit a strategy's downside, but cause it to lag in bull markets. In recent months, the strategy also had less Volatility factor exposure than 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, communication services and energy, that are similar to the category. The sectors with low exposure compared to category peers are technology and consumer cyclical; however, the allocations are similar to the category. The strategy owns 369 securities and invests 24.6% of assets in its top 10 holdings, similar to the category average. And finally, in terms of portfolio turnover, looking at year-over-year movements, 29% of the fund's holdings have turned over, whether through increasing, decreasing, or changing a position.

The number one 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. A low cost, with fees that rank in its category's least costly 20%, also strengthens the rating. A higher expense ratio reduces net returns, so low costs give this team an advantage. 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.

The strategy is backed by Lina Nassar, the longest-tenured manager, who has been a listed portfolio manager for seven years. The strategies they currently manage have an average Morningstar Rating of 2.3 stars, demonstrating disappointing risk-adjusted performance compared with category peers. Despite having a small team, the two listed managers boast 14 years of listed portfolio management experience. None of the portfolio managers here invest in this fund. This hurts the rating because manager investment would align their interests with the strategy's investors.

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.

Narrowing in on the past three-year period, it trailed the category index, the MSCI Emerging Markets Index, by an annualized 1.3 percentage points, and underperformed the category average by 2.6 percentage points. And more importantly, when looking across a longer horizon, the strategy fell behind the index. On a five-year basis, it underperformed the index by an annualized 30 basis points.

Even when adjusting for risk, the fund does not hold up. The share class trailed the index with a lower Sharpe ratio, a measure of risk-adjusted returns, over the trailing five-year period. But notably, these subpar risk-adjusted results have not come with more volatility than the benchmark, as measured by standard deviation. Finally, the share class proved itself ineffective as it was unable to generate alpha, over the same period, against the category group index: a benchmark that encapsulates the performance of the broader asset class.

This share class is within the cheapest quintile of its Morningstar Category. Its low expense ratio, in conjunction with the fund’s People, Process, and Parent Pillars, indicates that this share class is well-positioned to generate positive alpha relative to its category benchmark, explaining its Morningstar Medalist Rating of Silver.