JPMorgan US Research Enhanced Equity has seen some analyst turnover, and its process results in a portfolio quite similar to its index. The fund receives a Morningstar Analyst Rating of Neutral across all share classes.
A seasoned group of investors drives this strategy, though increased turnover in recent years gives pause. Raffaele Zingone, who has comanaged this strategy since 2002 and became the lead manager in late 2016, has spent his entire three-decade career at JPMorgan. The 24-person analyst team averages 21 years of industry experience and 11 years at the firm. However, the team saw four analysts leave over the trailing 12 months through August 2022, its highest turnover in the past five years. This attrition follows several years of analyst departures across sectors. Encouragingly, the team has hired analysts to maintain coverage, and its coverage transitions have mostly been well thought out.
The fund’s process features tight guardrails around its prospectus benchmark, the S&P 500. The analysts project earnings for each stock under their coverage, then a quantitative model ranks the names by expected returns within each sector. Zingone uses the top picks to construct the portfolio, with the goal of offering shareholders a modestly higher risk-adjusted return versus the S&P 500. He keeps the strategy's annualized tracking error (the standard deviation of its excess returns) to 1.5% and maintains tight adherence to the index’s sector weights. Individual positions cannot deviate more than 1 percentage point from the index’s. These narrow constraints mean that stock-picking drives the fund’s returns, but they also limit the portfolio's distinctiveness; as of July 2022, the portfolio's active share (a measure of differentiation in names and weights from a benchmark) was just 36%.
So far, the strategy has delivered on its promise to edge past its benchmark after fees. Over Zingone’s tenure from November 2016 through August 2022, the institutional shares’ 13.8% annualized return outpaced the S&P 500 and its Morningstar Category index (the Russell 1000 Index) by 46 and 75 basis points, respectively. Stellar performance in 2020 and 2021 helped make up for the fund’s underperformance in prior years.