JPMorgan International Value R2 JPVZX

A strong management team and sound investment process underpin JPMorgan International Value R2's Morningstar Quantitative Rating of Bronze. Fees are a weakness here. The strategy's lofty fees are a high hurdle to clear, as it is priced within the second-costliest quintile among peers.

The strategy's managers invest alongside shareholders, which helps it earn an Above Average People Pillar rating. The strategy's sensible investment philosophy earns an Above Average Process Pillar rating. The portfolio has been significantly underweight quality exposure and has an overweight in yield exposure compared with category peers. Low quality exposure is attributed to stocks with higher financial leverage and lower profitability. And a high yield exposure is rooted in holding high dividend-paying or buyback stocks. The strategy belongs to a strong asset-management firm that earns an Above Average Parent Pillar rating. The firm, for example, has had a high lineup success ratio and overall affordable fees.

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

This strategy skews toward smaller, deeper value companies than its average peer in the Foreign Large Value Morningstar Category. Examining additional factor exposure, this strategy tilts toward low-quality stocks or the shares of companies with more financial leverage and lower profitability. These are not defensive holdings. The strategy is also historically less exposed to the factor compared with Morningstar Category peers. The managers have also tended to overweight yield, shown by the portfolio's high exposure to dividends or buybacks. Higher-yielding stocks can increase income, but some dividend-payers also might cut their payouts when earnings fall. And compared with category peers, the strategy historically has had more exposure. Additionally, the strategy has exhibited a neutral stance to volatility, suggesting it does not have a demonstrable preference for companies with a high or low historical standard deviation of returns. As of the most recent portfolio disclosure, the portfolio has about average exposure compared with others in the equity fund universe. However, the portfolio has more exposure than its Morningstar Category peers. More information on a fund and its respective category's factor exposure can be found in the Factor Profile module within the Portfolio section.

The portfolio is overweight in financial services and energy relative to the average peer in its category by 13.0 and 5.2 percentage points in terms of assets, respectively. The sectors with low exposure compared to their category peers are technology and consumer defensive, underweight the average by 5.6 and 5.5 percentage points of assets, respectively. The portfolio is positioned across 227 holdings and is quite concentrated. Specifically, 19.8% of the strategy's assets are housed within the top 10 holdings, as opposed to the typical peer's 13.7%. And in closing, in terms of portfolio turnover, this portfolio turns over its holdings less quickly than peers, potentially leading to lower costs for investors and eliminating a drag on performance.

JPMorgan International Value Fund benefits from personal investments from managers and an experienced team, warranting an Above Average People Pillar rating. Michael Barakos’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 2.9 stars, demonstrating, in aggregate, that they provide middling value for investors. Michael Barakos is supported by an experienced team, being able to draw on three additional listed managers, who average 16 years of portfolio management experience. The highest personal investment in the fund by any of its managers is between $500,000 and $1 million. That's on the low side--it would need to be more than $1 million for us to see the investment as sufficient to promote the strong alignment of their interests with the strategy's investors.

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 Retirement share class has held up poorly, falling behind both its peers and the category benchmark. Over the past 10-year period, this share class lagged its average peer by an annualized 1.4 percentage points. It was also not able to clear the hurdle set by the category index, MSCI ACWI ex USA Value Index, where it trailed by an annualized 58 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. The strategy also took on elevated risk, contributing to the bad outcome for investors. Specifically, the fund had a higher standard deviation, 17.2%, compared with the benchmark, 15.8%. 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 pay attention to fees, as they are essentially negative alpha. This share class charges a fee that positions it in its Morningstar Category's second-costliest quintile. Even with this fee, the fund’s People, Process, and Parent Pillars suggest this share class has the potential to deliver positive alpha relative to its category benchmark, earning it a Morningstar Quantitative Rating of Bronze.