JPMorgan California Tax Free Bond I JPICX

JPMorgan California Tax Free Bond I boasts strong Process and People Pillar ratings, but other weaknesses hold this strategy's Morningstar Quantitative Rating at Neutral. The portfolio maintains a sizable cost advantage over competitors, priced within the second-lowest fee quintile among peers.

The strategy's sensible investment philosophy merits an Above Average Process Pillar rating. Independent of the rating, analysis of the strategy's portfolio shows it has maintained an underweight position in A rated bonds and an overweight in 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 is part of a first-rate parent, as shown by a favorable lineup success ratio and overall reasonable fees. These attributes support its Above Average Parent Pillar rating.

Morningstar's style-agnostic investment process evaluation looks for strategies with a philosophy distinctive enough to generate excellent results in the future. JPMorgan California Tax Free Bond Fund earns an Above Average Process Pillar rating.

Compared with other funds in the Muni California Intermediate Morningstar Category, this fund takes on significantly lower credit risk. But in terms of long-term interest-rate sensitivity, it hews closely to its average peer. 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 underweight position on A rated bonds compared to peers. Additionally, there's been a notable overallocation to 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 2.0%, which is neck-and-neck with its average peer's. Plus, it has a 3.0% 30-day SEC yield (a measure similar to yield-to-maturity). The portfolio holds assets with a higher average surveyed credit quality of AA, compared with the typical peer's A and it holds no non-investment grade assets, despite the average peers' 1%. Strategies with less credit risk may help to provide a reliable ballast during periods of equity market stress.

Even with managers' lack of personal investments, the team managing JPMorgan California Tax Free Bond Fund stands out with minimal team turnover. This strength bolsters the strategy's Above Average People Pillar rating. The team is backed by Michelle V. Hallam, the longest-tenured manager on the strategy, who brings 18 years of portfolio management experience. The average Morningstar Rating of the strategies they currently manage is 2.8 stars, demonstrating underwhelming risk-adjusted performance. Despite having a small team, the two listed managers boast 23 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. None of the managers here invests any money in the strategy, which is disappointing, as such investments help align managers' interests with fundholders.

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' 1.3% return was about even with the average peer's performance. It trailed the category benchmark, Bloomberg Barclays MF California Intermediate Municipal Bond Index, by an annualized 46 basis points over the same period.

Even when adjusting for risk, the fund does not hold up. The share class trailed the index with a lower Sharpe ratio, a measure of risk-adjusted returns, over the trailing 10-year period. These subpar risk-adjusted results have not resulted in the drawback of a bumpier ride for investors. This strategy took on similar risk as the benchmark, as measured by 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.

Because fees compound over time and diminish returns, it is critical for investors to minimize expenses. This share class charges a fee that ranks in its Morningstar Category's second-cheapest quintile. Despite this fee, the fund’s People, Process, and Parent Pillars indicate this share class is unlikely to deliver positive alpha relative to its category benchmark, garnering a Morningstar Quantitative Rating of Neutral.