JPMorgan Small Cap Blend I JDSCX

A strong management team and sound investment process underpin JPMorgan Small Cap Blend I's Morningstar Quantitative Rating of Silver. The portfolio maintains a sizable cost advantage over competitors, priced within the second-lowest fee quintile among peers.

The management team's considerable industry experience drives an Above Average People Pillar rating for the strategy. The strategy's investment approach stands out and earns an Above Average Process Pillar rating. The portfolio has underweighted quality exposure and liquidity exposure compared with category peers. Low quality exposure is attributed to stocks with higher financial leverage and lower profitability. And a low liquidity exposure is rooted in stocks with lower trading volumes, limiting managers' flexibility. 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 evaluation of this fund's process aims to determine how repeatable, consistent, and reliable execution is, and whether management maintains competitive advantage. JPMorgan Small Cap Blend Fund earns an Above Average Process Pillar rating.

This strategy skews toward smaller, more undervalued companies than its average peer in the Small Growth Morningstar Category. Analyzing additional factors, this strategy tilts toward low-quality stocks or the shares of companies with more financial leverage and lower profitability. These are not defensive holdings. The strategy is also historically less exposed to the factor compared with Morningstar Category peers. This strategy has also exhibited a tilt towards liquid assets, evidenced by consistently holding companies with relatively higher trading volumes. This contributes to more flexibility during bear markets for managers to sell without adversely affecting prices. But when compared with category peers, the strategy historically has had less exposure. Additionally, this strategy leans toward low-yield stocks, holding fewer companies with high dividend or buyback yields. Most often, returning capital to shareholders is not a priority for businesses with low or no yields because they are reinvesting in their operations and plans. Such companies can pay off with strong returns should the selected companies deliver on growth projections, but they're also riskier. However, the portfolio has less exposure than its Morningstar Category 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 is overweight in financial services and real estate relative to the average peer in its category by 7.5 and 4.5 percentage points in terms of assets, respectively. The sectors with low exposure compared to their category peers are technology and healthcare, underweight the average by 8.2 and 7.2 percentage points of assets, respectively. The portfolio is composed of 237 holdings and assets are more dispersed than peers in the category. In particular, 10.2% of the strategy's assets are concentrated in the top 10 fund holdings, as opposed to the category’s 26.5% average. And finally, in terms of portfolio turnover, this portfolio turns over its holdings less quickly than peers, potentially leading to lower costs for investors and eliminating a drag on performance.

JPMorgan Small Cap Blend Fund's experienced corps of managers and strong longest-tenured manager support its Above Average People Pillar rating. Eytan M. Shapiro, the longest-tenured manager on the strategy, boasts over 25 years of portfolio management experience. The average Morningstar Rating of the strategies they currently manage is 2.6 stars, demonstrating disappointing risk-adjusted performance. Eytan M. Shapiro has an experienced listed co-manager. Together, they average over 25 years of portfolio management experience.

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.

This strategy's Institutional share class has lapped both its peers and the category benchmark. Over a 10-year period, this share class outperformed the category’s average return by 2.9 percentage points annualized. And it also beat the category index's, Russell 2000 Growth Index's, gain by an annualized 3.3 percentage points over the same period. Although the overall rating does not hinge on one-year performance figures, it is notable that this share class lost 18.8%, an impressive 9.3-percentage-point lead over its average peer, placing it within the top 10% of its category.

The risk-adjusted performance only continues to make a case for this fund. The share class outstripped the index with a higher Sharpe ratio, a measure of risk-adjusted return, over the trailing 10-year period. Often, higher returns are associated with more risk. However, this strategy stayed in line with the benchmark's standard deviation. However, the share class proved itself ineffective as it was unable to generate alpha, over the same 10-year period, against the category group index: a benchmark that encapsulates the performance of the broader asset class.

Returns vary from period to period, but expenses are always deducted. It is good practice to weigh them heavily in any investment evaluation. This share class sits in the second-cheapest quintile of its Morningstar Category. Its attractive fee, considered jointly with the fund’s People, Process, and Parent Pillars, suggests that this share class has the ability to deliver positive alpha against its category benchmark, leading to its Morningstar Quantitative Rating of Silver.