JPMorgan Growth Advantage R5 JGVRX

The upcoming retirement of JPMorgan Growth Advantage’s lead manager will be a loss, but the firm’s broader research resources should continue to serve the strategy well. Cheaper share classes earn a Morningstar Analyst Rating of Silver, while more expensive ones earn Bronze.

Tim Parton, who recently announced that he will retire in early 2024, has performed admirably over his 20 years managing this fund. While his departure will be a drawback, his success owes to both his stock picking prowess and the skill of the component strategies from which he selects investments. This all-cap strategy compiles the highest-conviction ideas from J.P. Morgan's growth-equity teams. Parton and comanager Felise Agranoff, who will succeed him on this fund and Bronze-rated JPMorgan Mid Cap Growth HLGEX, oversee a group effort. They work closely with fellow managers Giri Devulapally of Bronze-rated JPMorgan Large Cap Growth SEEGX and Eytan Shapiro of JPMorgan Small Cap Growth OGGFX. They also benefit from synergies with J.P. Morgan’s 20-plus member core research team, which covers large-cap stocks for other strategies at the firm. Parton, Devulapally, and Shapiro have led their charges since 2004, posting good results relative to benchmarks and peers.

Agranoff developed under Parton’s mentorship on the firm’s small- and mid-cap growth team and shares a similar investment philosophy. While she lacks large-cap investing experience, she has plenty of supporting resources and time to adapt. Her 18 years as a mid-cap analyst and portfolio manager will still play a key role as mid-caps take up around 30% of assets and remain a key differentiator. She will also get assistance from an experienced large-cap analyst in Larry Lee, who is now a comanager. Lee has nearly 30 years of industry experience, 19 of them at J.P. Morgan.

The investment process should remain consistent. It will continue to invest in the firm’s most promising stocks, while allowing for flexibility to choose exposures across the market-cap spectrum. This more concentrated and customizable approach has yielded benefits over the years as the fund has consistently outperformed the Russell 3000 Growth Index and a custom benchmark comprising the component strategies weighted by their representation in the portfolio.

While Parton’s stock-picking no doubt has helped produce a strong track record, Agranoff should have the tools necessary to extend it.

This fund benefits from flexibility and conviction, earning an Above Average Process rating.

While it falls in the large-growth Morningstar Category, this strategy has long benefitted from the ability to invest in small- and mid-cap companies. Indeed, many of its best ideas weren’t large caps when first purchased in the portfolio, such as Tesla TSLA in 2011, Netflix NFLX in 2013, and software company Veeva Systems VEEV in 2013. Managers Tim Parton and Felise Agranoff have free range to select the top ideas from across J.P. Morgan's growth equity platform, though they ensure the resulting portfolio doesn't fall too far out of line from the sector and market-cap composition of the Russell 3000 Growth Index.

The strategy usually leans toward stocks with higher growth and momentum profiles than the benchmark. However, according to Morningstar's data, its exposure to the growth factor has steadily declined since mid-2019 as Parton tilted away from fast-growing stocks with lofty valuations in favor of those with less price risk in sectors such as industrials, materials, and consumer staples. That repositioning paid off as growth stocks have sold off in 2021 and 2022.

Now at over $20 billion in assets, the strategy likely won't have a 10% allocation in small caps as it did a decade earlier, yet it should maintain 20-40% in mid-caps. The fund's performance hasn’t suffered from a shift to larger-cap stocks as the team has added value from stock selection across the board.

This is an all-cap portfolio, but it has leaned more heavily on large caps lately. As of June 2022, large- and mega-cap stocks took up a combined 65% of assets, versus around 50% a decade earlier. Asset growth at this strategy and at JPMorgan Small Cap Growth OGGFX likely has played a role in a shift away from small caps, although the closing of the small-cap fund in 2021 helps preserve this fund's ability to own some of the same stocks, even if at modest weightings. The portfolio still owns more mid-cap stocks than the Russell 3000 Growth Index. At the end of June 2022, its 30.5% mid-cap stake was roughly twice that of the benchmark.

Though the larger names at the top of the portfolio are competitively advantaged and profitable, the rest of the portfolio is less so. The overall portfolio has less exposure to companies with economic moats than the benchmark, according to Morningstar's analyst-driven data. The portfolio's average long-term earnings growth projections tend to exceed those of the benchmark, but so do its average valuation measures. This makeup courts volatility, but lead manager Tim Parton was cognizant of that and trimmed exposure to areas such as technology leading up to the ongoing growth-stock sell-off, which helped preserve capital.

Key active bets versus the benchmark include underweightings in the largest companies such as Apple AAPL, Microsoft MSFT, and Amazon.com AMZN. Parton has preferred smaller companies perceived to have greater upside potential.

A key manager transition will take place in early 2024 when longtime manager Tim Parton retires, but successor Felise Agranoff has strong enough surrounding resources to retain an Above Average People rating.

This fund’s success has always been a team effort. While Parton has added value as a stock picker over two decades, he has benefitted from a good pool of ideas generated by the three other strategies that serve as feeders for this fund. Giri Devulapally of Bronze-rated JPMorgan Large Cap Growth SEEGX and Eytan Shapiro of JPMorgan Small Cap OGGFX growth bring decades of experience and good track records. Incoming lead manager Agranoff has been a contributor here too through her work as comanager of JPMorgan Mid Cap Growth HLGEX since 2016, and before that as a top-performing smid-cap analyst. Mid-caps should take up around 30% assets here and will remain a key differentiator versus large-growth peers.

While Agranoff isn’t a proven large-cap manager, she’ll have plenty of time to prepare for her new role and will also still benefit from dedicated large- and smid-cap analyst teams that drive ground-level research. Members have an average of 18 years of industry experience and eight at J.P. Morgan. She’ll also benefit from synergies with J.P. Morgan’s 20-plus member core research team, which supports some of the firm’s other large-cap strategies.

Agranoff will get assistance from an experienced large-cap investor in Larry Lee, who is now a comanager of this fund. Lee has nearly 30 years of industry experience, 19 of them at J.P. Morgan.

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 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.

Manager Tim Parton has put up an impressive record on this best-ideas fund. From his January 2002 start through July 2022, the A share class' 11.4% annualized return beat the large-growth category average and the Russell 3000 Growth Index benchmark by 3.8 and 2.0 percentage points, respectively. The fund outpaced these bogies consistently. In rolling three-year periods over this time, it did better than the peer average 100% of the time and the benchmark 80% of the time. It has also steadily outperformed a custom benchmark comprising the component strategies from which it draws ideas, thanks to Parton’s stock-picking acumen. Some of the strategy’s best stocks include Tesla, Mastercard MA, and Generac GNRC—all multiyear holdings that returned multiples of their initial investment.

Investors should keep in mind that the strategy has also been volatile, tending to capture more of the market's steady gains and sharp downturns. It fared slightly worse than its benchmark during the market's sharpest drawdowns in years such as 2008, 2011, 2018, and 2020. Its most noticeable period of underperformance, though, was early in 2016, a time when investors fled high-growth stocks in response to fears of a slowing global economy. To avoid another such result, Parton pulled back on fast-growing stocks beginning in 2019, which cushioned its subsequent fall when growth stocks fell out of favor. The fund’s only modest underperformance relative to its benchmark in 2021 and through the first seven months of 2022 helped preserve its gains from a huge 2020 in which it gained over 50%.

Overall, the strategy has rewarded investors for enduring greater volatility.

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 second-cheapest quintile. 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 be able to deliver positive alpha relative to the category benchmark index, explaining its Morningstar Analyst Rating of Silver.