Experienced and capable managers who effectively exploit their deep bench of analysts add to the strategy’s appeal. The strategy, which includes U.S.-domiciled JPMorgan U.S. Large Cap Core Plus and its Luxembourg-domiciled sibling JPM U.S. Select Equity Plus, earns a Morningstar Analyst Rating of Bronze for its cheapest share classes, while pricier ones land at Neutral. Previously, an error in the calculation of the prospectus adjusted expense ratio for the U.S. mutual fund's I share class led to a Neutral rating instead of Bronze.
Susan Bao has managed this strategy since inception in 2005. She’s a J.P. Morgan veteran who joined in 1997 as an analyst and earned her spurs as a portfolio manager when teaming up with her mentor, Tom Luddy. The duo first ran a sleeve of the long-only strategy JPMorgan US Equity since 2001 and managed together this 130/30 strategy since its launch. Luddy stepped down from portfolio management at the end of 2017. Bao retained a smaller sleeve on the long-only fund to ultimately hand it over to Scott Davis as the multi-sleeve approach was abandoned in 2020.
On this strategy, Luddy was succeeded by Steven Lee, who had been managing JPMorgan Research Market Neutral, the firm's long-short strategy, which serves as the blueprint for this strategy’s 30/30 extension. Although the partnership of Bao and Lee is still relatively new, the managers have collaborated well, and they have demonstrated their ability to generate alpha from both long and short ideas provided by the analyst team. This sizable career analyst team is instrumental to the strategy’s success and gives it ample resources to conduct in-depth fundamental research.
The strategy looks sensible and is designed to fully exploit the analyst recommendations by taking long positions in top-ranked companies while shorting stocks disliked by the analysts. Classic fundamental bottom-up research should give the fund an informational advantage. The portfolio is quite diversified, holding 250-350 stocks in total with modest deviations from the category index in the long leg which has become more focused over the 12 months ending December 2022. The 30/30 extension is broadly sector-, style-, and beta-neutral. Here the managers are cognizant of the risks of shorting stocks, where they select stocks on company-specific grounds or as part of a secular theme. Short exposure generally stands at 20%-30%, with the portfolio's net exposure to the market kept at 100%.
The strategy’s performance since inception, which still has some relevance given Bao’s involvement, has been outstanding, beating the Morningstar Category average and Russell 1000 Index over various time horizons. Although that inspires some confidence, we put more weight on the track record since Steven Lee joined. It is reassuring that the managers have generally performed well, beating both yardsticks and with solid contributions from both long and short positions, particularly in 2020 and 2021.