JPMorgan Small Cap Equity Fund Class R4 JSEQX

A talented team and thoughtful process adjustments give JPMorgan Small Cap Equity the ability to overcome recent poor performance.

Managers Don San Jose and Dan Percella have a long, successful history with this strategy. San Jose began supporting this strategy as an analyst before being promoted to comanager in 2007 and eventually taking over the lead role in 2013. Percella, who had been an analyst on the team since 2008, became a comanager in 2014. Percella has gradually accrued more responsibilities in recent years as San Jose’s role as CIO of J.P. Morgan’s value equity division takes up more of his time. San Jose still has final say on the portfolio.

A solid team of analysts, who average more than 13 years with the fund, backs the managers. The analyst team is small, but its experience and exclusive focus on small- and mid-cap stocks make the collective workload manageable. One long-tenured analyst recently departed, but the team plans to quickly backfill the vacated spot. Collaboration with J.P. Morgan’s large and strong central group of analysts adds support.

The team looks for market leaders run by skilled management teams with consistently good profitability, competitive advantages, and high returns on invested capital. The managers will hold on to stocks that move up the market-cap ladder, even if valuations get stretched, so long as fundamentals remain sound. That courts price risk but maintains the portfolio’s high-quality profile. The team is working to increase idea generation and is expanding its searches at the margins to consider areas with tailwinds, such as industrials benefiting from data center buildouts, and sectors where it lacks exposure relative to the benchmark.

This approach has solid long-term results, although recent underperformance pulls down standardized trailing returns. From San Jose’s start in November 2007 through April 2026, the institutional share class’ 9.0% annualized return beat its Russell 2000 Index prospectus benchmark by 1.4 percentage points. For the trailing year through April 2026, however, the strategy’s 15.8% return lagged the index by 28.6 percentage points and landed the fund in the bottom decile of its Morningstar Category peers. Still, the strategy has offered excellent downside protection, and recent adjustments could help moderate underperformance during rising markets.

The strategy’s quality-oriented process earns an Above Average Process Pillar rating, but recent adaptations are a watchpoint.

The process focuses on finding great businesses priced as merely good ones. The team scours the small-cap universe for best-in-class companies with consistently high levels of profitability whose management teams are proven efficient capital allocators. The emphasis on steadier business models means earnings and free cash flow growth are more important to the team than top-line revenue growth.

The strategy keeps its sector exposures within 10% of its index. The team largely focuses on companies in niche industries that can leverage their competitive positioning, but it also adds names in areas with tailwinds and in sectors where the portfolio lacks market-like exposure.

After multiple years of underperformance, the team has accelerated its idea generation. The managers added 25 names to the portfolio in 2025 after generally averaging 10-15 names per year. This increased speed doesn’t mean diving headlong into new names; the managers still build out new positions gradually as they validate their investment theses. They trim holdings that appreciate—few climb above 2.0% of assets—and tolerate higher valuations as long as their theses remain intact. They are willing to expand their number of holdings with lower-conviction bets during periods of uncertainty.

The team’s high-quality focus drives it toward somewhat larger stocks than many of its small-blend category peers. The average market cap of its March 2026 portfolio was roughly USD 5.2 billion, considerably higher than its Russell 2000 Index prospectus benchmark’s USD 3.3 billion. The managers’ preference for riding their best-performing stocks contributes to this skew. They have recently been willing to hold winners much higher in the market-cap range. Electronics company Fabrinet and semiconductor manufacturer MACOM, which had market caps of USD 18.7 billion and USD 16.6 billion as of March 31, 2026, are two examples.

The strategy’s focus on quality has been consistent even as it shifts closer to the benchmark’s shape. As of March 31, 2026, its quality metrics were higher than the index’s: return on assets (4.62% versus negative 1.02%), return on equity (14.08% versus 5.31%), and net margin (10.59% versus 8.84%). While the team is becoming more willing to consider industries that are somewhat lower quality but with tailwinds, such as industrials that benefit from data center buildouts, it isn't afraid to diverge from the benchmark. The team’s preference for profitability leads to overweightings in some areas, such as industrials, and underweightings in others, such as healthcare, where the team largely eschews biotechnology.

The team maintains its Above Average People rating despite the departure of a long-tenured analyst and shifting workloads among the portfolio managers.

Managers Don San Jose and Dan Percella have a long history together. After joining J.P. Morgan in 2000, San Jose became a comanager on this strategy in 2007 and took over lead duties in 2013. Percella joined him at the helm in January 2014 after serving on the small-cap core team since 2008. The pair also comanages JPMorgan SMID Cap Equity, which has the same investment process but targets slightly larger firms.

San Jose took over as the chief investment officer of J.P. Morgan’s value equity division in late 2021. Percella has gradually accrued more responsibilities here as the CIO role takes up more of San Jose’s time. But San Jose remains the lead manager and has final say over the portfolio.

The managers primarily work with a team of dedicated analysts. Each analyst covers a couple of sectors, but they remain generalists. Chris Carter, who has been on the team since 2015 and has 20 years of industry experience, is leaving in the summer of 2026. That will take the team down to three from four until the position is backfilled. Jon Brachle is the most senior analyst on the team, while Jesse Huang and Michael Yuan are more recent additions with about 10 years of experience each. The team also collaborates with J.P. Morgan’s core analyst group and the firm’s risk-management team.

J.P. Morgan continues to build a track record of strong stewardship, supporting a Parent rating upgrade to High from Above Average.

With more than USD 4 trillion in assets under management (including USD 1.3 trillion in money market funds) and a broad reach, J.P. Morgan is among the largest active asset managers in the US, Europe, and Asia. Although some multi-asset offerings have struggled over the past five years, prompting new leadership to make changes to investment teams, its equity and fixed-income teams boast long-tenured portfolio managers who practice repeatable investment processes that have generally produced strong long-term results. Most of its funds are core building blocks with long lifetimes, though its lineup around the world also includes more-specialized options: Two options-based equity-income exchange-traded funds, launched in 2020 and 2022, are now among the firm’s largest. J.P. Morgan has been an early mover in offering active ETFs, having converted 12 of its open-end mutual funds to the structure and launching others. It isn’t always at the forefront of emerging trends. While it has filed registration statements with the Securities and Exchange Commission for an interval fund and an ETF investing in private markets, it hasn’t yet introduced such an option for all investors, whether on its own or in partnership with another asset manager, unlike some of its closest competitors.

To support the firm’s diverse investment offerings, J.P. Morgan has invested heavily in both portfolio management tools and its client organization. Over the past 10 years, the firm has developed robust proprietary technology with advanced analytics and broad buy-in from investment analysts, portfolio traders, and portfolio managers, all of whom have easy access to the platform. The firm also stands apart for its demonstrated commitment to clients. In the early 2000s, J.P. Morgan began pivoting its engagement with financial advisors to adopt a more consultative approach, supported by its sought-after Guide to the Markets research series that focuses on investor education, not product pitches. This perspective can help clients stay the course, supporting positive investor outcomes.

Incentives reinforce alignment with fundholders. Beginning more than 10 years ago, investment team compensation is tied to three-, five-, and 10-year performance, and portfolio managers must invest at least half of their deferred compensation in J.P. Morgan strategies. Many firms encourage portfolio managers to invest alongside fundholders, but J.P. Morgan goes a step further in requiring client-facing individuals to invest substantial portions of their incentive compensation in the funds.

Although some funds still face high cost hurdles, more than half of share classes charge competitive fees relative to peers.

Underperformance has recently overshadowed this strategy’s strong long-term record.

This strategy has been impressive for most of the current managers’ history, although sharp underperformance in the past few years has dented its track record. From Don San Jose’s appointment as a manager in November 2007 through April 2026, the institutional share class’ 9.0% annualized return beat the fund's small-blend category average of 7.7% and its Russell 2000 Index prospectus benchmark’s 8.5% gain. Risk-adjusted results were even stronger; the strategy's standard deviation (a measure of volatility) was well below its index’s and peers’. It’s worth noting that in the long term it has lagged the Russell 2500 Index—a relevant comparison given the fund’s average market cap.

While the team’s focus on firms with durable business models has helped it shine in most market downturns, it can hold the fund back in sharp rallies. The trailing 12 months through April 2026 are a striking example: The Russell 2000 Index gained 44.4% versus the fund’s 15.8%. That performance put the fund in the bottom decile of its small-blend category peers. Low-quality companies, with traits like weak profitability and high leverage that the strategy typically avoids, dominated the recent small-cap rally. Recent market behavior, however, only partially explains why the fund fell short. Many of the strategy’s picks in industrials, healthcare, and financials dragged down returns. Despite the tough run over the past few years, this is still a strategy that can deliver over the long term.

JPMorgan Small Cap Equity R4's Prospectus Adjusted Expense Ratio is 0.99% per year. It places it in the middle quintile of the Morningstar US Fund Small Blend Category, where the median fee is 0.94% per year. This cost positioning translates into a Medalist Rating Price Score of -0.37, which reflects its relative price positioning within the category. The Price Score ranges from -2.50 (most expensive) to +2.50 (cheapest), with higher scores indicating better cost competitiveness.