JPMorgan US Sustainable Leaders I JIISX

JPMorgan US Sustainable Leaders I’s strong process and parent firm underpin this strategy's Morningstar Quantitative Rating of Bronze. The portfolio maintains a sizable cost advantage over competitors, priced within the second-cheapest 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 belongs to a strong asset-management firm that earns an Above Average Parent Pillar rating. The firm, for example, has had a favorable lineup success ratio and overall reasonable fees. Finally, this management team has a wealth of experience, but still gets an Average People Pillar rating.

Morningstar's evaluation of this fund's process seeks to understand management's investment philosophy, and whether it has been applied consistently over time and can add value across the market cycle. JPMorgan U.S. Sustainable Leaders Fd earns an Above Average Process Pillar rating.

This strategy targets smaller plays than its peers’ average in the Large Blend Morningstar Category. But in terms of investment style, the strategy is on par with peers. Analyzing additional factors, this fund tilts toward stocks with low trading volumes, which can be harder to trade than more-liquid holdings, particularly during periods of market stress. However, compared with Morningstar Category peers historically, the strategy is more exposed to the factor. This strategy has also exhibited a tilt toward low-volatility stocks, meaning companies with a lower historical standard deviation of returns. Limited exposure to the volatility factor tends to pay off most during periods of market stress. But when compared with category peers, the strategy has historically had more exposure. Additionally, the managers currently show no preference for or aversion to high-yield stocks. The strategy's portfolio has about as much yield exposure as other equity strategies. However, the portfolio has more exposure than its Morningstar Category peers. 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 is overweight in financial services and healthcare relative to the average peer in its category by 3.8 and 2.9 percentage points in terms of assets, respectively. The sectors with low exposure compared to their category peers are energy and consumer defensive, underweight the average by 4.4 and 3.2 percentage points of assets, respectively. The strategy owns 71 securities and assets are more dispersed than peers in the category. In particular, 35.2% of the strategy's assets are concentrated in the top 10 fund holdings, as opposed to the category average's 50.0%. And in closing, in terms of portfolio turnover, this fund trades less frequently than the category’s average, potentially limiting costs to investors.

Even with its relatively unseasoned longest-tenured manager, the team managing JPMorgan U.S. Sustainable Leaders Fd stands out with an experienced corps of managers. Taken together, the strategy earns an Average People Pillar rating. The team is guided by the longest-tenured manager Andrew Stern, who offers four years of portfolio experience. The average Morningstar Rating of the strategies they currently manage is 3.1 stars, demonstrating average risk-adjusted performance. Andrew Stern has an experienced backdrop of support. The three listed managers boast 13 years of average portfolio management experience. As a team, they manage two investment vehicles together, with solid long-term prospects. The strategies average a Bronze asset-weighted combined Morningstar Analyst and Quantitative Rating, indicating a position to deliver positive alpha in aggregate.

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 Institutional share class' long-term performance is mixed depending on the yardstick used. It has provided better returns compared with peers, but subpar returns compared with the category benchmark. This share class led its average peer by an annualized excess return of 1.6 percentage points over a 10-year period. Despite the solid performance against its peers, it did not extend when compared to the category index, Russell 1000 Index, where it trailed by an annualized 20 basis points over the same period.

When adjusting for risk, this fund is not compelling. The share class had a lower Sharpe ratio, a measure of risk-adjusted returns, than the index over the trailing 10-year period. However, this strategy hewed close to the benchmark's standard deviation. Finally, the share class proved itself ineffective as it was unable to generate alpha, over the same 10-year period, against the category group index: a benchmark that encapsulates the performance of the broader asset class.

It is imperative to evaluate fees, which compound over time and reduce returns. This share class is in the second-cheapest quintile of its Morningstar Category. Its attractive expense ratio, paired with the fund’s People, Process, and Parent Pillars, results in a judgment that this share class has high potential to deliver positive alpha compared with its category benchmark, explaining its Morningstar Quantitative Rating of Bronze.