JPMorgan U.S. GARP Equity continues to come with some open questions that limit its appeal.
Manager Andrew Stern has only led this strategy since May 2021, but he is no stranger to the team and the approach. Stern took over following the departure of longtime manager Jason Alonzo, but Stern had served as an analyst here for more than a decade, as well as a comanager since 2019. He works alongside manager Wonseok Choi, who leads the quant group's efforts. But they have had to navigate a handful of departures in recent years, including Alonzo. More recently in May 2023, quant comanager Jonathan Tse left the strategy, though he remains with the firm. In November 2023, fundamental analyst Grace Liu and quant analyst Ellen Sun were promoted to comanagers. The moves help solidify the team, but the pattern of turnover is still a concern.
This strategy combines quantitative and fundamental elements to try to outperform the Russell 1000 Growth Index; it is sensible and repeatable, but not very distinctive. It starts with a quantitative model screening the U.S. large- and mid-cap universe for stocks displaying the best combination of value, quality, and momentum characteristics. It will look at some traditional metrics such as price ratios for valuation, but it also includes many advanced features such as natural language processing that analyzes earnings call transcripts for possible indications about quality and momentum. While many quant strategies use similar characteristics, the model also draws upon insights from J.P. Morgan’s core research team, such as its earnings and cash flow estimates. Finally, Stern and his fundamental team review the model to ensure its accuracy and can adjust the model's inputs to reflect one-time items or other material events.
The fund's performance in 2019 and 2020 struggled, but it has improved lately. In those earlier years, the fund's shift toward value stocks (relative to most large-growth funds) backfired as growth stocks led the way. But in the three years through October 2023, the institutional shares' 10.3% annualized return ranks in the top decile of all large-growth Morningstar Category peers. Sticking to its principles paid off, as Morningstar’s risk attribution showed that the strategy's value exposure was one of the main contributors to its recent success.