JPMorgan US Sustainable Leaders I JIISX

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

The strategy's effective investment philosophy supports an Above Average Process Pillar rating. Independent of the rating, analysis of the strategy's portfolio shows it has maintained an overweight in liquidity exposure and volatility exposure compared with category peers. High liquidity exposure is attributed to stocks with a high trading volume, lending managers more flexibility. And high volatility exposure is rooted in stocks that have a higher standard deviation of returns. The strategy’s management team earns an Average People Pillar rating. The strategy's parent organization earns the firm an Above Average Parent Pillar rating. People Pillar and Parent Pillar ratings for this strategy are indirectly assigned by a Morningstar analyst rather than algorithmically derived. Please see the notes following each pillar section for more details. The details of assigning methods can be found in each pillar section.

JPMorgan U.S. Sustainable Leaders Fd earns an Above Average Process Pillar rating.

The largest contributor to the rating is its parent firm's superior long-term risk-adjusted performance, as shown by the firm's average 10-year Morningstar Rating of 3.3 stars. Respectable risk-adjusted performance also strengthens the process. This can be seen in the fund's five-year alpha calculated relative to the category index, which suggests that the managers have shown skill in their allocation of risk. Lastly, the process is limited by being an actively managed strategy. Historical data, like Morningstar's Active/Passive Barometer, finds that actively managed funds have generally underperformed their passive counterparts, especially over longer time horizons.

This strategy tends to pick smaller market-cap companies compared with the average fund in its peer group, the Large Blend Morningstar Category. But in terms of investment style, it is on par with peers. Looking at additional factor exposure, this fund has constantly tilted toward stocks with higher trading volumes than its Morningstar Category Peers over the past few years. Such stocks may have less potential upside than illiquid holdings, but they are easier to trade during market downturns. In recent months, the strategy was more exposed to the Liquidity factor compared with its Morningstar Category peers as well. This strategy has also exhibited a tilt toward high-volatility stocks over these years, meaning it has invested in companies that have a higher historical standard deviation of returns. Such exposure tends to pay off when markets are hot and to be costly when they are not. Compared with category peers, the strategy also had more exposure to the Volatility factor in the most recent month. In addition, the strategy had less exposure to high-yield stocks compared with Morningstar Category peers in recent months. Its preference for stocks with lower yields may well lead to a growthier portfolio. However, growth stocks court additional risks if their forecasts do not come to fruition and are often more volatile than companies with stable dividends. 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 has allocations in its top two sectors, technology and healthcare, that are similar to the category. The sectors with low exposure compared to category peers are consumer defensive and energy, with consumer defensive underweighting the average portfolio by 2.8 percentage points of assets and energy similar to the average. The portfolio is composed of 77 holdings and its assets are more dispersed than the typical peer in the category. In the most recent disclosure, 40.6% of the portfolio's assets were concentrated in the top 10 fund holdings, as opposed to the category’s 50.1% average. And in closing, in terms of portfolio turnover, this fund trades more frequently than its average peer, potentially racking up additional expenses for investors and creating a drag on performance.

Andrew Stern brings six years of listed portfolio management experience to the team. Andrew Stern draws on only two other listed supporting managers. Although, together they are adequately equipped, with eight years of average listed portfolio management experience. The management team is invested in the fund, but the maximum investment by any manager is between$ 100,000 and$ 500,000. An investment of more than$ 1 million would be ideal to align managers' interests with those of the fund's investors.

Note: The People Pillar rating is indirectly assigned by an analyst. The longest-tenured manager of the fund also manages a different product rated by an analyst. Their analyst-assigned People Pillar rating is combined here with the People scores (algorithmic or analyst-assigned) for the fund’s other managers on a tenure-weighted basis.

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 been successful over the short term but weak over the long term. Over the past five years, the fund outstripped the category index, the Russell 1000 Index, by 40 basis points, and exceeded its average peer by 2.4 percentage points. More importantly, on a 10-year basis, this share class underperformed the index by an annualized 24 basis points.

The share class failed to beat the index with a lower Sharpe ratio, a measure of risk-adjusted returns, over the trailing 10-year period. This subpar risk-adjusted performance has not resulted in higher volatility, as measured by their standard deviation, which is close to the benchmark.

This share class lands in the second-cheapest quintile of its Morningstar Category. Its competitive fee, paired 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 Bronze.