JPMorgan Equity Focus A JPFAX

JPMorgan Equity Focus A's Average People Pillar and Process Pillar ratings hold this strategy's Morningstar Quantitative Rating of Neutral. Fees are a weakness here. The strategy's lofty fees are a high hurdle to clear, as it is priced within the second-highest quintile among peers.

The strategy benefits from its experienced portfolio management team. This is a positive driver for the strategy's Average People Pillar rating. The strategy merits an Average Process Pillar rating. The portfolio has overweighted 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 has a solid parent that earns an Above Average Parent Pillar rating. This firm has had a competitive lineup success ratio and overall low fees.

JPM America Equity is an amalgamation of the highest convictions picked by Jonathan Simon from his JPMorgan Value Advantage portfolio with Tim Parton’s top favourite picks from his JPMorgan Growth Advantage portfolio. Both portfolio managers combine a quant filter with fundamental bottom-up research, for which the analyst teams play an instrumental role. Simon applies a mild value style, preferring attractively priced quality stocks combined with some opportunistic positions. Parton targets companies with quality franchises and strong market positions and typically builds a high-growth portfolio. Each sleeve can hold only 10-20 stocks. The managers run their sleeves autonomously but have regular discussions about the overall portfolio and its exposures. The value and growth allocations are driven by bottom-up convictions and are typically balanced but can move in a 40%-60% range. Several other portfolio construction rules apply: The managers cannot hold the same names in their sleeves and cannot borrow names from each other. They can allocate capital to one another when they lack strong convictions. Although the process looks sensible on paper, the combination of a mild value approach with a high-growth style does not allow for much diversification between value and growth, which can reduce the fund’s attractiveness as a core strategy in our view, supporting a Process Pillar rating of Average. With Parton’s upcoming retirement in 2024, it remains to be seen how the growth sleeve in this strategy will be managed by his successor and what the implications might be for this strategy.

The partnership of value veteran Jonathan Simon and growth expert Tim Parton, whose best ideas are blended in the portfolio of JPM America Equity, will come to an end in 2024. It is not known yet who will run this strategy after that. We are therefore assigning the strategy a People Pillar rating of Average.

In July 2022, Parton announced that he will retire in 2024, having spent his entire 36-year career at J.P. Morgan. He runs a range of growth-focused strategies, and teams up with Simon on several other funds, including this strategy, where he has been responsible for managing the growth sleeve since February 2017. With Parton’s planned step down in 2024; the fund will lose a seasoned growth investor who has built a strong track record on his strategies. While his departure is still some time away, lack of clarity around the succession plan for this comanaged fund create uncertainties for investors. Felise Agranoff, who has been with J.P. Morgan for 18 years and joined the growth team as a small- and mid-cap analyst in 2006 and became comanager for JPMorgan Mid-Cap Growth (2015) and JPMorgan Growth Advantage (2020), will take over from Parton on the aforementioned funds as lead manager. Larry Lee, a large-cap growth analyst, will be joining her as comanager for JPMorgan Growth Advantage, while small- and mid-cap growth analyst Daniel Bloomgarden joins her as comanager on JPMorgan Mid-Cap Growth. JPMorgan Growth Advantage’s portfolio has historically been the source of ideas for Parton’s growth sleeve, but it is yet unclear how the growth sleeve will be managed and who will manage it from 2024 onwards. J.P. Morgan aims to pick Parton’s successor before the end of 2022. Another factor to consider here is that the strategy is run as a partnership with Simon, who has managed the value sleeve since August 2011. Hence, Simon has a say in who will succeed Parton when he steps away. While Simon himself has not communicated a concrete plan to retire at this stage, he has reached an advanced stage of his career having spent 42 years at the firm. Despite the uncertainties at the portfolio manager level, we draw some comfort from the firm’s extensive and seasoned analyst teams who are instrumental for the portfolio managers. The core/value team boasts 28 sector analysts with on average 19 years of industry experience, while the growth team consisting of five large-cap analysts and 11 mid- and small-cap analysts has 15 years of investment experience on average.

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 A share class' long-term performance is mixed depending on the yardstick used. It has provided subpar returns compared with peers, but better returns compared with the category benchmark. Specifically, this share class trailed its average peer by 1.0 percentage point annualized over a 10-year period. Despite the poor performance against its peers, it did not extend when compared to the category index, Russell 1000 Index, where the share class led by an annualized 27 basis points over the same period.

When adjusting for risk, this fund is not compelling. The share class trailed the index with a lower Sharpe ratio, a measure of risk-adjusted returns, 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 eat away at expected returns. This share class is within the second-costliest quintile of its Morningstar Category. Its pricey fee, paired with the fund’s People, Process, and Parent Pillars, indicates that this share class could struggle to deliver positive alpha versus its category benchmark, leading to its Morningstar Quantitative Rating of Neutral.