JPMorgan California Tax Free Bond C JCBCX

JPMorgan California Tax Free Bond C boasts strong People and Process Pillar ratings, but other weaknesses hold this strategy's Morningstar Quantitative Rating at Neutral. Fees are a weakness here. The strategy's lofty fees are a high hurdle to clear, as it is priced within the highest quintile among peers.

The strategy has been able to retain portfolio managers, which builds stability and continuity and results in an Above Average People Pillar rating. The strategy's sensible investment philosophy earns an Above Average Process Pillar rating. The portfolio has underweighted A rated bonds and has an overweight in debt with 10- to 15-year maturities compared with category peers. The strategy belongs to a strong asset-management firm that earns an Above Average Parent Pillar rating. The firm, for example, has had a favorable lineup success ratio and overall low fees.

Morningstar's style-agnostic investment process evaluation looks for strategies with a philosophy distinctive enough to generate standout results in the future. JPMorgan California Tax Free Bond Fund earns an Above Average Process Pillar rating.

Compared with other funds in the Muni California Intermediate Morningstar Category, this fund takes on lower credit risk. But in terms of long-term interest-rate sensitivity, it hews closely to its average peer. Opening the analysis to additional factors, the portfolio, over time, has displayed three biases whether toward or away from certain fixed-income instruments. First, managers have shown a consistent underweight position on A rated bonds compared to peers. Additionally, there's been a notable bias toward debt with 10- to 15-year maturities. And finally, the fund does not consistently lean toward or away from corporate bonds, but the current portfolio is underweight its peers.

This strategy's 12-month yield is 1.4%, lower than its average peer's 2.0%. Plus, its 30-day SEC yield (a measure similar to yield-to-maturity) sits at 2.0%. A lower yield tends to indicate lower credit risk. The portfolio holds assets with a higher average surveyed credit quality of AA, compared with the category average's A and it holds no non-investment grade assets, similar to its average peer. Strategies with less credit risk may help to provide a reliable ballast during periods of equity market stress.

Even with managers' lack of personal investments, the team managing JPMorgan California Tax Free Bond Fund stands out with minimal team turnover. This strength bolsters the strategy's Above Average People Pillar rating. Michelle V. Hallam, the longest-tenured manager on the strategy, boasts 18 years of portfolio management experience. The average Morningstar Rating of the strategies they currently manage is 2.7 stars, demonstrating, in aggregate, that they do not provide value for investors. Despite having a small team, the two listed managers boast 24 years of portfolio management experience. The team has successfully retained portfolio-manager talent, providing continuity for strategies as long-term stability tends to support positive results. There have been no documented departures within the past 10 years. 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.

A well-resourced, thoughtful, and disciplined steward of client assets, JPMorgan Asset Management maintains an Above Average Parent rating.

As of 2022, this investment stalwart manages more than USD 2.5 trillion in AUM. Composed of various cohorts globally and a diverse set of 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.

Performance-wise, this strategy’s C share class, with returns reported in US Dollar, has demonstrated it is ineffective over a wide time frame, with inferior returns compared with peers and when adjusted for risk. The share class had a lower Sharpe ratio, a measure of risk-adjusted returns, than the category index, Bloomberg Barclays MF California Intermediate Municipal Bond Index, over the trailing 10-year period. However, this strategy hewed close to the benchmark's 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.

The picture does not change when looking at long-term absolute returns. The share class underperformed the category index by an annualized 1.1 percentage points over the past 10 years. And comparing it against category peers does not paint a brighter picture. Specifically, the strategy trailed its average peer by an annualized 67 basis points for the same 10-year period.

It is imperative to evaluate fees, which compound over time and diminish returns. This share class lands in the costliest quintile of its Morningstar Category. Its pricey fee, paired with the fund’s People, Process, and Parent Pillars, results in a judgment that this share class could struggle to deliver positive alpha against its category benchmark, explaining its Morningstar Quantitative Rating of Neutral.