JPMorgan U.S. GARP Equity’s reliance on common factors doesn’t give it an enduring edge, warranting a Morningstar Analyst Rating of Neutral.
This strategy has lagged its benchmark and peers in recent years, but it is sticking to its principles. A quantitative model powers the process. It screens the U.S. large- and mid-cap universe for stocks displaying what the JPMorgan team thinks is the best combination of value, momentum, and quality characteristics. The model uses some traditional measures to make its assessments, such as trends in short interest to determine momentum and price multiples to assess valuation. It also incorporates proprietary factors such as natural language processing of earnings call transcripts and regulatory filings designed to yield clues regarding a company’s business momentum or tone of management. Despite all the strategy’s features, its tilt away from the large-growth universe’s largest companies on valuation concerns in 2019 and 2020 proved costly. To be sure, the strategy typically possesses less of a growth tilt than its Russell 1000 Growth Index benchmark, which put it at a disadvantage given the steep outperformance of the growth factor, but idiosyncratic bets magnified the level of underperformance.
New lead manager Andrew Stern took over from longtime manager Jason Alonzo in May 2021, but the quant framework remains intact. Stern is equipped for his new role, having served as an analyst on the team since 2011 and as comanager since November 2019. He’ll work alongside comanager Wonseok Choi, who heads the group’s quant efforts. Stern and one supporting analyst scrutinize the model’s output, looking for abnormalities or exogenous factors, such as an impending legal ruling, that could likely influence a stock’s price. The team may also manually adjust a stock’s fundamental ranking if there is reason to emphasize one input metric over another. It also leverages insights from JPMorgan’s core research team, which effectively covers the large-cap universe.
The strategy has made up some ground in 2021 as its tilt away from some of 2020’s strongest performers such as Apple AAPL, Zoom Video Communications ZM, and Coupa Software COUP worked out. Stern is aware of the strategy’s recent performance deficit and remains focused on engineering better factors to help improve future performance.