JPMorgan Core Bond R2 JCBZX

JPMorgan Core Bond boasts seasoned portfolio managers, the vast resources of JPMorgan’s fixed income franchise, and a time-tested process, earning a Morningstar Analyst Rating of Silver for its cheapest share class and Bronze and Neutral for its more-expensive share classes.

Portfolio manager Rick Figuly, a multidecade firm veteran and head of JPMorgan’s core bond team, leads this effort with the support of comanager Justin Rucker and U.S. fixed-income CIO Steve Lear. Figuly and Rucker work alongside a broader group of experienced portfolio managers in Columbus, Ohio, who have built up a strong record of applying their value-driven approach to selecting attractively valued securities that generate strong cash flows. Their supporting credit research, trading, and operational resources, based across the United States and beyond, are robust and becoming more closely integrated.

Rather than take on significant interest rate risk, the team seeks to outperform its intermediate core bond Morningstar Category rivals by focusing on spread sectors, sensible sector rotation, and strong security selection. The managers keep duration within 10% of the Bloomberg U.S. Aggregate Bond Index and includes only investment-grade bonds at the time of purchase. A historical focus on securitized debt differentiates this strategy from peers and its benchmark; this allocation has included everything from plain-vanilla mortgage passthroughs to commercial mortgage-backed securities, out-of-benchmark agency collateralized mortgage obligations, and nonagency MBS. More recently, in response to changing markets and relative value opportunities, the strategy has begun increasing its allocation to corporate bonds.

Absolute and risk-adjusted performance is strong over the trailing 10 years ended March 2022; its R6 share class posted a 2.6% annualized result, 30 basis points better than peers. In addition, its resiliency when markets have stuttered contributed to a lower level of volatility (as measured by standard deviation) over the same period.

This bond strategy offers investors a consistent, value-driven approach, backed by seasoned portfolio managers and the deep resources of JPMorgan.

This strategy’s time-tested, value-driven approach underpins a disciplined process to guide this intermediate core bond offering, earning it an Above Average Process Pillar rating.

The managers rely on frequent formal and informal collaboration among this team of generalists to identify timely investment ideas. A combination of proprietary models and the insight of seasoned sector specialists support bottom-up security analysis. The team then sifts through these recommendations to construct a portfolio that offers attractive relative value among investment-grade bond sectors. The strategy minimizes duration and yield-curve positioning as a driver of excess returns, typically keeping duration within 10% of its Aggregate Index benchmark.

This strategy plays to the strengths of JPMorgan’s securitized credit expertise, overweighting various types and structures than its benchmark or typical intermediate core bond category rival. The portfolio historically has comprised 30%-65% of assets in agency MBS, 15%-40% in a combination of corporate and securitized credit, and 15%-35% in U.S. Treasuries. Securities must be investment-grade at the time of purchase, and therefore the team avoids taking on significant credit risk.

This is not a high-,turnover strategy and the comanagers will typically adjust the portoflio gradually based on their current macro outlook and sector views. The team also leverages an array of risk-management tools to oversee risk throughout the process.

Prevailing relative value opportunities drive portfolio decisions, and these Ohioans favor spread sectors to lower-yielding U.S. Treasuries. The team’s long-standing bias to securitized bonds of all varieties have held true over time, which makes this portfolio somewhat unique in its intermediate core bond ategory, but more recently, it has highlighted corporate credit opportunities.

As of March 2022, this strategy’s 42% allocation to securitized debt was far heavier than its typical rival’s 32% stake. Exposures to agency MBS (24%), nonagency MBS (8%), commercial MBS (5%), and asset-backed securities (4%) differentiate this strategy from peers and its benchmark. The roughly 8% stake in nonrated bonds stems primarily from its securitized allocation; JPMorgan’s credit research team applies internal ratings, and, as of March 2022, all these positions were deemed to be investment-grade rated. Outside of securitized, the managers are typically underweight in U.S. Treasuries versus the index by 10%-15%. Over the past two years, the managers took advantage of better value in corporate bonds, bringing an approximately 6% underweighting closer to the benchmark’s 29% allocation and favoring financials companies over industrials within this sector.

The strategy’s 5.8-year duration versus its index’s 6.5 years reflects the managers’ defensive posture against the negative impact of rising rates.

Portfolio manager Rick Figuly leads this experienced Columbus, Ohio-based investment team that leverages the deep resources of JPMorgan’s vast fixed-income franchise, earning an Above Average People Pillar rating.

A veteran fixed income investor, Figuly was named head of the firm’s core bond team in late 2019 and has helmed this strategy since 2015 when longtime portfolio manager and strategy architect Doug Swanson retired. Justin Rucker joined him in 2019 and brings more than 20 years of investment experience. Steve Lear, the firm’s U.S. fixed-income CIO, joined the two in 2021 and underscores the firm’s focus on integrating its geographically widespread fixed-income resources.

The value-driven core bond team includes nine generalist portfolio managers with average industry experience of 22-plus years, and two associates. While some have sector specialties, the generalist approach drives each manager to understand all areas of the bond market and encourages cross-pollination of ideas to make better relative value judgments. The team applies its fundamental analysis in selecting compellingly priced cash flows.

The managers lean on the firm’s broadly staffed credit research team, led by Kay Herr, for security recommendations. The global research team includes 21 investment-grade analysts, six structured credit analysts, and various specialists dedicated to quant investing, risk management, and trading. Over the past year, the portfolio management team remained unchanged, but the credit research team experienced some modest turnover because of retirements and departures; these positions were backfilled by experienced researchers.

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.

Consistency is a hallmark of this strategy, and over various periods has ranked in the upper quartile of peers. Its performance profile relative to its unique intermediate core bond category peers over the long term reflects the managers’ preference for securitized bonds and corporate credit over U.S. Treasuries.

Since Rick Figuly’s tenure from October 2015 through March 2022, this strategy’s R6 share class returned 2.4% annualized and outpaced the Aggregate Index’s 2.1% and median rivals’ 2.2%, while achieving upper-quintile risk-adjusted performance (as measured by Sharpe ratio). That it achieved this result with lower volatility than peers speaks to the team’s ability to select securities with stable cash flows and manage overall risk.

The strategy has shown itself to be a stalwart performer over credit selloffs. When corporate markets sold off both during the commodity-related June 2015 through February 2016 credit drawdown and in the broad market fourth-quarter 2018 sell-off, this strategy posted a positive, top-quintile result in both cases. While stress in securitized markets weighed on results during the coronavirus-driven market collapse between Feb. 20 and March 23, 2020, it still eked out a result stronger than 60% of its rivals.

The strategy’s shorter-than-benchmark duration and high-quality biases helped it hold up versus peers during the most recent rising-rate period; for the year to date through March 2022, the strategy’s 5.4% loss was ahead of 85% of unique peers.

It’s critical to evaluate expenses, as they come directly out of returns. The share class on this report levies a fee that ranks in its Morningstar category’s costliest quintile. Such high fees stack the odds heavily against investors. Based on our assessment of the fund’s People, Process and Parent pillars in the context of these fees, we don’t think this share class will be able to deliver positive alpha relative to the category benchmark index, explaining its Morningstar Analyst Rating of Neutral.