JPMorgan Emerging Markets Debt R5 JEMRX

The portfolio maintains a cost advantage over competitors, priced within the second-cheapest fee quintile among peers.

The strategy has been able to retain portfolio managers, which builds stability and continuity and results in an Above Average People Pillar rating. The strategy's effective investment approach earns an Above Average Process Pillar rating. Independent of the rating, analysis of the strategy's portfolio shows it has maintained a considerable underweight position in A rated bonds and has a significant overweight in debt with 20- to 30-year maturities compared with category peers. The strategy's parent organization earns the firm an Above Average Parent Pillar rating, and this rating is inherited from vehicles belonging to the same branding entity and is indirectly assigned by an analyst.

JPMorgan Emerging Markets Debt Fund earns an Above Average Process Pillar rating.

The leading factor in the rating is its parent firm's excellent long-term risk-adjusted performance, as shown by the firm's average 10-year Morningstar Rating of 3.3 stars. The parent firm's five-year risk-adjusted success ratio of 55% also supports the process. The measure indicates the percentage of a firm's funds that survived and beat their respective category's median Morningstar Risk-Adjusted Return for the period. Their impressive success ratio suggests that the firm does well for investors and that this fund may benefit from that.

Compared with other funds in the Emerging Markets Bond Morningstar Category, this fund, historically, hews closely to peers' credit and interest-rate sensitivity over the past few years. Opening the analysis to additional factors, the portfolio has displayed biases over time, whether towards or away from certain fixed-income instruments. Relative to the average strategy in the category, the managers have been substantially underweight A rated bonds in recent years. In the latest month, the strategy has also relatively underweighted A rated bonds compared with Morningstar Category peers. Additionally, there's been a notable overallocation to debt with 20- to 30-year maturities over the past few years. Compared with category peers, the strategy had more exposure to debt with 20- to 30-year maturities in the most recent month. Finally, during the past few years, the fund leaned away from corporate debt. In recent months, the strategy also had less exposure to corporate debt compared to its peers.

This strategy's 12-month yield is 5.9%, lower than its average peers' 6.1%. In addition, it has a 6.5% 30-day SEC yield (a standardized, point-in-time estimate of the fund’s future income return). Typically, a lower yield comes with the benefit of less credit risk. But that isn't always the case. Over the past 12 months, the average yield of the fund has been lower than the average yield of its Morningstar Category peers. The portfolio has a lower average surveyed credit quality of B, compared with the category average's BB and its non-investment-grade stake is 64% of assets, compared to its peers' 50%. Lower quality bonds have higher yields but come with more risk.

The main contributor to the rating is its parent firm's impressive long-term risk-adjusted performance, as shown by the firm's average ten-year Morningstar Rating of 3.3 stars. The stability of the management team also bolsters the rating. Specifically, the fund has not seen a manager change in the last nine years. Lastly, the rating is limited because no manager has invested more than$ 1 million in the fund.

The team is backed by Pierre-Yves Bareau, the longest-tenured manager on the strategy, who brings over 25 years of listed portfolio management experience. Despite having a small team, the two listed managers boast 19 years of listed portfolio management experience.

As of 2022, this investment stalwart manages more than USD 2.5 trillion in AUM. Composed of various global cohorts and diverse 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.

It has provided mixed returns compared with peers, but poor returns compared with the category benchmark. Over an eight-year period, this share class' underperformed the category’s average by an annualized 73 basis points. But when expanded to a 10-year period, it outperformed the average by 17 basis points. Despite the mixed performance compared to peers, it trailed the category benchmark by an annualized 1.0 percentage point over the same 10-year period.

When adjusting for risk, the fund does not hold up. The share class trailed the index with a lower Sharpe ratio, a measure of risk-adjusted returns, over the trailing 10-year period. The strategy also took on elevated risk, contributing to the bad outcome for investors. Specifically, the fund had a higher standard deviation, 10.4%, compared with the benchmark, 7.4%. However, 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.

This share class lands in the second-cheapest quintile of its Morningstar Category. Its low expense ratio, in conjunction with the fund’s People, Process, and Parent Pillars, indicates that this share class should be able to deliver positive alpha relative to its category benchmark, leading to its Morningstar Medalist Rating of Silver.