JPMorgan Unconstrained Debt R2 JISZX

Fees are a weakness here. The strategy's lofty fees are a high hurdle to clear, as it is priced within the second-costliest 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 debt with five- to seven-year maturities and government bonds compared with category peers. The management team's considerable industry experience earns it an Above Average People Pillar rating. The strategy is part of a first-rate parent that has a competitive lineup success ratio and overall low fees. These attributes support its Above Average Parent Pillar rating.

JPMorgan Unconstrained Debt Fund earns an Above Average Process Pillar rating.

The primary contributor to the rating is the parent firm's five-year risk-adjusted success ratio of 59%. 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. Respectable risk-adjusted performance also contributes to 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, such as Morningstar's Active/Passive Barometer, finds that actively managed funds have generally underperformed their passive counterparts, especially over longer time horizons.

Compared with other funds in the Nontraditional Bond Morningstar Category, this fund, historically, hews closely to peers' credit and interest-rate sensitivity. Opening the analysis to additional factors, the portfolio has displayed three biases over time, whether towards or away from certain fixed-income instruments. Compared with the category average, the managers have been overweight debt with five- to seven-year maturities. Additionally, the fund has exhibited a sector bias toward government bonds. And finally, the fund does not consistently lean toward or away from AA rated bonds, but the current portfolio is overweight.

This strategy has a modest 3.2% 12-month yield, lower than its average peers' 4.3%. It also has a 3.8% 30-day SEC yield (a measure similar to yield-to-maturity). 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's average surveyed credit quality is on par with peers, with both the fund and the average being rated BB.

Robert Michele, the longest-tenured manager on the strategy, boasts over 25 years of portfolio management experience. The average Morningstar Rating of the strategies they manage is 3.8 stars, demonstrating above-average risk-adjusted performance compared to category peers. Robert Michele is supported by an experienced team, being able to draw on four additional listed managers, who average over 30 years of portfolio management experience. As a team, they manage four investment vehicles together, with solid long-term prospects. The strategies average a Silver asset-weighted Morningstar Medalist Rating, indicating a position to deliver positive alpha in aggregate. At least one member of the team has invested$ 1 million or more of their own capital in the fund, which helps align their interests with the strategy'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.

Over a 10-year period, this share class' 2.1% gain mirrored the category's average return. And it exceeded the return of the category benchmark, the ICE BofA US 3 Month Deposit OR CM Index, by an annualized 86 basis points over the same period.

When adjusting for risk, the fund is not shown in a favorable light. The share class trailed the index with a lower Sharpe ratio, a measure of risk-adjusted returns, over the trailing 10-year period. In addition to its subpar risk-adjusted performance, the strategy also took on elevated risk, as measured by a higher standard deviation, 2.9%, than the benchmark, 0.4%.

This share class levies a fee that places it in its Morningstar Category's second-costliest quintile. Even with this fee, the fund’s People, Process, and Parent Pillars build confidence that this share class should be able to generate positive alpha versus its category benchmark, garnering a Morningstar Medalist Rating of Bronze.