JPMorgan Emerging Markets Equity A JFAMX

JPMorgan Emerging Markets Equity has a highly experienced management team, extensive resources, and a notable investment process in its favor. The U.S. mutual fund earns a Morningstar Analyst Rating of Silver across all share classes; its overseas-domiciled counterparts earn ratings of Gold, Silver, or Bronze depending on share class fees.

Leon Eidelman joined the U.S. mutual fund as a comanager in 2013, became the strategy’s primary decision-maker in early 2015, and was formally recognized as the lead manager in July 2016. Former lead manager Austin Forey remains on board as a comanager as well as the firm's head of the fundamental GEM team, while Amith Mehta joined the U.S. mutual fund as a comanager in 2013.

The managers are well supported by the firm's 92-member emerging-markets and Asia-Pacific equities team. That team’s research analysts provide ample research support based on a well-structured and repeatable framework, ensuring the breadth and quality of coverage.

The managers employ the same quality/growth process as other strategies managed by the EMAP team. They normally invest the vast majority of assets in premium and quality names, which operate in attractive industries with limited external risks and possess strong balance sheets and solid cash flow generation.

Given the focus on quality growth, the strategy should perform well in markets driven by earnings growth and other fundamentals such as occurred in 2020. On the flip side, the strategy is likely to struggle in value-oriented markets such as the past 12 months, when growth stocks struggled in general and a number of internet-related holdings sold off sharply following strong performance in previous years while commodity-related and many other value stocks outperformed.

Finally, the strategy’s total assets under management as of March 2022 was around $40 billion, a decline from $53.8 billion a year prior. The U.S. mutual fund and Luxembourg-domiciled vehicle remain soft-closed, while the U.K. offering remains open given regulatory restrictions, although it is not marketed to new clients.

This high-caliber approach has many strengths in terms of its structure, discipline, and consistency, so it earns an Above Average Process rating.

The approach favors quality growth companies. The team seeks firms that boast quality franchises, consistent earnings streams, and solid returns on equity. To execute the approach, the managers leverage the team's country specialists and sector/product analysts. Sector/product analysts conduct in-depth fundamental research on prospective ideas and assign five-year expected return targets. Analysts also classify stocks on their coverage lists as premium, quality, or trading, according to the firm's strategic classification framework, which is based on a 98-point questionnaire. Premium and quality names operate in attractive industries with limited external risks and possess strong balance sheets, good management teams, and solid cash-flow-generation prospects, while trading names lack sustainable competitive advantages. The vast majority of assets are allocated to premium and quality names, with trading names making up only a small portion. The team’s valuation framework helps to ensure managers pay the right price for the opportunity, although they are prepared to pay up for quality and growth.

The portfolio normally includes 60 to 80 stocks, with no formal constraints at the country or sector levels. The portfolio also tends to exhibit higher returns on assets and other quality metrics than the MSCI Emerging Markets Index and most other diversified emerging-markets Morningstar Category strategies given the focus on quality franchises with sustainable competitive advantages and consistent cash flow generation.

The portfolio continues to be positioned to benefit from secular growth in emerging-markets consumption, including increasing penetration of financial products in underbanked markets. Current high-conviction themes include e-commerce, Asian insurance franchises, and Indian private-sector banks. The e-commerce leaders MercadoLibre of Brazil and JD.com of China were top-10 holdings in the U.S. mutual fund as of February 2022, in fact, as were the Hong Kong-based insurer AIA and HFDC Bank of India.

The strategy has historically been underweight energy and materials firms relative to the index and most peers, and that remained the case as of February 2022. Indeed, the U.S. mutual fund’s 5.3% combined stake in the energy and materials sectors was well below the MSCI EM Index's 14.3% and its average peer’s 11.5%.

The strategy usually focuses well up the market-cap ladder, and the U.S. mutual fund had an average market cap of $69.6 billion versus $40.8 billion for the index and $52.6 billion for its typical rival.

Lead manager Leon Eidelman’s expertise and consistent execution of the process, as well as the strength of the supporting EMAP team, earn a High People rating.

Leon Eidelman joined the U.S. mutual fund as a comanager in 2013, became the strategy’s primary decision-maker in early 2015, and was formally recognized as lead manager in July 2016. He continues to get support from former lead manager Austin Forey, who remains a comanager here as well as the head of the fundamental GEM team at the firm.

Eidelman and Forey work closely together and alongside the other two managers on the firm’s emerging-markets fundamental team, Amit Mehta (who has been a named comanager on the U.S. mutual fund since 2013) and John Citron. A junior manager, Weiying Dong, was added in January 2022, although she doesn't have any specific portfolio management responsibilities yet. She will be a China specialist as a Mandarin speaker and will interact heavily with the China team and analysts.

Eidelman and Forey are also supported by the broader emerging-markets and Asia-Pacific team composed of 92 analysts and portfolio managers. This includes 37 sector/product analysts, who conduct company-specific and industry-level research, as well as 28 country specialists. Overall, the EMAP team is deep, experienced, and stable.

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 has earned solid results during Leon Eidelman’s tenure at the helm. Since he became the primary decision-maker on Jan. 1, 2015, through March 31, 2022, the U.S. mutual fund’s R6 share class earned a 6.2% annualized gain versus 4.5%, 4.9% and 6.2% for its typical diversified emerging-markets Morningstar Category peer, the MSCI Emerging Markets Index (the category benchmark), and the MSCI Emerging Markets Growth Index, respectively. Its risk-adjusted results were also superior to those of its average peer and the core index as well as right in line with those of the growth index.

The strategy has prospered in rallies under Eidelman. The R6 share class of the U.S. mutual fund comfortably outpaced its average peer and both indexes in the surges of 2019 and 2020, for example, fueled by Ping An Insurance, Kweichow Moutai, and several other China holdings in 2019 and by its communication-services and consumer-related picks in 2020.

The strategy has struggled during the past year, though. Its growth bias has been burdensome as growth stocks have suffered much more than core equities and value names in the developing world, and several of its China holdings posted oversize losses. The U.S. mutual fund’s R6 share class plunged 22.7% during the 12 months though March as result, while its average peer, the MSCI Emerging Markets, and the MSCI Emerging Markets Growth fell 13.8%, 11.4%, and 18.3%, respectively.

It’s critical to evaluate expenses, as they come directly out of returns. The share class on this report levies a fee that ranks in its Morningstar category’s middle quintile. That’s not great, but based on our assessment of the fund’s People, Process and Parent pillars in the context of these fees, we think this share class will still be able to deliver positive alpha relative to the category benchmark index, explaining its Morningstar Analyst Rating of Silver.