JPMorgan National Municipal Income I JITIX

A sound investment process and strong management team underpin JPMorgan National Municipal Income I's Morningstar Quantitative Rating of Bronze. The portfolio maintains a 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 a significant overweight position in AA rated bonds and debt with 10- to 15-year maturities compared with category peers. The strategy's management team has a high retention rate, which helps continuity and earns it an Above Average People Pillar rating. The strategy has a solid parent that earns an Above Average Parent Pillar rating. This firm has had a favorable lineup success ratio and overall low fees.

Morningstar's evaluation of this fund's process seeks to determine how repeatable, consistent, and reliable it is, and whether management maintains a competitive advantage. JPMorgan National Municipal Income Fund earns an Above Average Process Pillar rating.

Compared with other funds in the Muni National Interm Morningstar Category, this fund, historically, hews closely to peers' credit and interest-rate sensitivity. Opening the analysis to additional factors, the portfolio, over time, has displayed three biases whether toward or away from certain fixed-income instruments. First, managers have shown a consistent overweight position on AA rated bonds compared to peers. Additionally, there's been a bias toward debt with 10- to 15-year maturities. And finally, the fund does not consistently lean toward or away from corporate bonds, but the current portfolio is underweight its peers.

This strategy's 12-month yield is 2.8%, higher than its average peer's 2.2%. Plus, its 30-day SEC yield (a measure similar to yield-to-maturity) sits at 3.3%. While a higher yield may deliver more income, it also tends to indicate higher credit risk. The portfolio has a lower average surveyed credit quality of BBB, compared with the typical peer's A and 3% of the fund's assets are rated non-investment grade, compared to its peers' 0%. Strategies that take on more credit risk tend to be at their best when markets are as well. This risk contributes to strong performance during bull markets at the cost of losing more on the downside.

JPMorgan National Municipal Income Fund's impressive manager retention and experienced portfolio managers support its Above Average People Pillar rating. David Sivinski’s veteran status, with over 25 years of portfolio management experience, brings a wealth of experience to the table. The average Morningstar Rating of the strategies they currently manage is 2.8 stars, demonstrating underwhelming risk-adjusted performance. Although the team is small, it is a solid supporting cast. Together, the three listed managers boast more than an average of 24 years of portfolio management experience. The team has successfully retained portfolio-manager talent, providing continuity for strategies as long-term stability tends to support positive results. There have been no documented departures within the past 10 years.

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 has mirrored both its average peer and category benchmark. Over the past 10-year period, this share class' 1.4% return was about even with the average peer's performance. It was not able to clear the hurdle set by the category index, Bloomberg Barclays Municipal 1-15 Year Bond Index, where it trailed by an annualized 52 basis points over the same period.

Even when adjusting for risk, the fund is not favorable. The share class trailed 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. 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 important for investors to be alert for fees, as they are essentially negative alpha. This share class is in the second-cheapest quintile of its Morningstar Category. Its attractive fee, considered jointly with the fund’s People, Process, and Parent Pillars, suggests that this share class has the ability to deliver positive alpha versus its category benchmark, leading to its Morningstar Quantitative Rating of Bronze.