JPMorgan Diversified A JDVAX Fund Analysis

Strength in JPMorgan Diversified A's Process Pillaris partially offset by an Average People Pillar rating, leading to a Morningstar Quantitative Rating of Neutral. The strategy charges fees in line with its similarly distributed peers, priced within the middle quintile.

The strategy benefits from its experienced portfolio management team. This is a positive driver for the strategy's Average People Pillar rating. The strategy's sensible investment philosophy earns an Above Average Process Pillar rating. The portfolio has overweighted the Europe-Developed region and the consumer cyclical sector compared with category peers. The strategy is part of a first-rate parent, as shown by a favorable lineup success ratio and overall attractive fees. These attributes support its Above Average Parent Pillar rating.

Morningstar's evaluation of this fund's process aims to determine whether it has been applied consistently over time, as demonstrated by the portfolio's composition, its suitability for different types of investors, and expectations for performance in various market conditions, assuming the process is adhered to. JPMorgan Diversified Fund earns an Above Average Process Pillar rating.

This strategy is positioned similarly to Allocation--50% to 70% Equity peers, in terms of its fixed-income to equity breakdown, with a 31.9% to 60.0% fixed-income to equity weighting. Looking exclusively at the portfolio's equity sleeve, the strategy is consistently tilted toward both smaller market-cap and growth-oriented stocks compared with the category average. The strategy has three region or sector biases compared to category peers. The most meaningful exposure is to the Developed Europe region, where the portfolio is typically overallocated. It also maintains an overweight bias toward the consumer cyclical sector. And finally, the portfolio has maintained an underallocation to developed markets regions compared with peers.

The current holdings' average price/earnings ratio is 17.5 versus the typical category peer's 18.5. The low markup indicates that investors expect lower growth in the fund’s stocks compared with others held in the category. The portfolio is overweight in consumer cyclical by 2.9 percentage points in terms of assets compared with the average portfolio in the category, and its financial services allocation is similar to the category. The sectors with low exposure compared to their category peers are consumer defensive and communication services; however, the allocations are similar to the average category portfolio. The portfolio is overweight in Developed Europe and Japan regions relative to the average peer in its category by 10.5% and 3.8% of assets, respectively. The regions with low exposure compared to their category peers are North America and Middle East and Africa, with North America underweight the average portfolio by 16.6% of assets and Middle East and Africa similar to the average.

Despite its managers' lack of personal investment, JPMorgan Diversified Fund benefits from a seasoned corps of managers. Together, this earns the team an Average People Pillar rating. Jeffrey A. Geller, the longest-tenured manager on the strategy, provides strong guidance, offering 22 years of portfolio management experience. The average Morningstar Rating of the strategies they currently manage is 2.6 stars, demonstrating underwhelming risk-adjusted performance. Jeffrey A. Geller has an experienced backdrop of support. The three listed managers boast 15 years of average portfolio management experience. As a team, they manage three investment vehicles together, with a Neutral asset-weighted average combined Morningstar Analyst and Quantitative Rating, indicating the team will struggle to deliver positive alpha in aggregate. 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.

This strategy’s A share class has lapped both its peers and the category benchmark. Over a 10-year period, this share class outpaced the category's average return by 55 basis points annualized. And it also beat the category index's, Morningstar Moderate Target-Risk Index's, gain by an annualized 64 basis points over the same period.

The risk-adjusted performance only continues to make a case for this fund. The share class had a higher Sharpe ratio, a measure of risk-adjusted return, than the index over the trailing 10-year period. Often, higher returns are associated with more risk. However, this strategy hewed close to the benchmark's standard deviation. Finally, the share class proved itself effective by generating positive 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 lands in the middle quintile of its Morningstar Category. Its middling expense ratio, taken together with the fund’s People, Process, and Parent Pillars, results in a judgment that this share class does not offer investors a good chance to capture positive alpha versus its category benchmark, explaining its Morningstar Quantitative Rating of Neutral.