Skip to Content

JPMorgan Small Cap Equity R5 JSERX

Analyst rating as of
  • NAV / 1-Day Return 54.33  /  0.82 %
  • Total Assets 6.1 Bil
  • Adj. Expense Ratio
  • Expense Ratio 0.800%
  • Distribution Fee Level Below Average
  • Share Class Type Retirement, Large
  • Category Small Blend
  • Investment Style Small Blend
  • Min. Initial Investment 0
  • Status Open
  • TTM Yield 0.32%
  • Turnover 16%

Morningstar’s Analysis JSERX

Analyst rating as of .

JPMorgan Small Cap Equity Reopens to New Investors; Ratings Unchanged

Our analysts assign Silver ratings to strategies that they have high conviction will outperform a relevant index, or most peers, over a market cycle.

JPMorgan Small Cap Equity Reopens to New Investors; Ratings Unchanged

Senior Analyst

Analyst Note


JPMorgan Small Cap Equity will reopen to new investors on Oct. 28, 2022, after being closed since late 2016. Outflows from the strategy since the start of 2021 amounted to over $2 billion, prompting J.P. Morgan’s reconsideration of the fund’s limited availability. While the strategy isn’t small at $6 billion-plus across vehicles, it has performed well at a larger size in the past. Small position sizes and low turnover should continue to afford the managers more leeway than most peers in accommodating additional assets. The strategy’s Above Average Process rating and Morningstar Analyst Ratings of Silver or Bronze (depending on share class fees) still apply.



JPMorgan Small Cap Equity stands out because of its stable, proven team and differentiated investment process. Its cheapest share classes earn a Morningstar Analyst Rating of Silver, while more expensive ones earn Bronze.

This strategy earns its keep by losing less in down markets, and while it didn’t perform as well it could have in 2022’s decline, it still delivered as advertised. Through the first five months of 2022, the institutional shares’ 14.6% loss was better than the 16.6% drop of the Russell 2000 prospectus benchmark. Holding less capital in unprofitable companies and more in those with strong financials and competitive positions (features that define the strategy’s investment philosophy) helped bolster returns across various sectors. Results would have been better, however, had managers Don San Jose and Dan Percella not exited their handful of energy stocks back in 2020. Against the benchmark--whose energy stocks have soared in recent months--the strategy’s outright avoidance of the sector made for a performance headwind. Even so, the managers aren’t looking to buy back into it: they find it too difficult to find energy companies predictable enough to fit with their process, particularly given oil’s high price volatility. The managers prefer companies with reliable revenue, defensible profit margins, and disciplined capital spending—traits not held by many smaller energy companies. Fortunately, performance across other market segments provided ballast.

The specificity of San Jose and Percella’s investment approach has enabled their relatively small team to navigate the expansive small-cap universe, and that should get a bit easier with the ascension of a new member. Officially named as an associate analyst in 2022, Jesse Huang will inherit a portion of San Jose and Percella’s coverage. Huang has worked at J.P. Morgan for six years and assisted the team for the past four. His new workload will help free up time for San Jose to carry out his duties as J.P. Morgan’s new CIO of value investing, a people management and oversight role. His primary duty will still be managing his existing charges.

The mutual fund remains closed to new investors. Those fortunate to have exposure should continue to be treated well.


| Above Average |

This strategy’s unique focus on quality companies in niche spaces earns it an Above Average Process rating.

The process here is all about finding great businesses priced as merely good ones. Managers Don San Jose and Daniel Percella scour the small-cap universe for best-in-class companies with consistently high levels of profitability that are led by management teams proven to be efficient capital allocators. They focus on companies operating in narrow niches, looking for those able to leverage their competitive positioning to protect and grow their returns on capital at rates higher than the market foresees. These traits, along with a preference for earnings and free cash flow over top-line revenue growth, lead them to steadier business models.

The team analyzes firms’ growth potential on a three- to five-year basis, but their view on margins tends to be the key differentiator. The team will happily own a company growing at a modest rate if it can expand its margins over time to produce strong earnings and cash flow that the market will reward. New positions are built out gradually as the managers look for validation of their investment thesis in the firm’s execution.

The managers trim holdings as they appreciate—few climb above 2.0% of assets—but tolerate higher valuations as long as their theses remain intact. They’ll hold onto their winners but will sell them once they become full-fledged mid-caps.

The portfolio contains both small- and mid-cap stocks, but its focus on quality is consistent. The managers’ preference for riding their best-performing stocks tends to skew the portfolio’s market-cap profile higher than most small-blend peers, but they are cognizant not to drift too far off course. Recent sales to preserve the strategy’s small-cap profile include longtime holdings Generac GNRC, FactSet FDS, Pool Corp POOL, and Catalent CTLT which grew into mid-caps.

The portfolio scores higher than the Russell 2000 prospectus benchmark on metrics such as return on assets and free-cash-flow yield. Trailing earnings- and revenue-growth rates are a touch lower on average, consistent with the managers’ preference for profitability over sales growth.

The strategy typically invests across all sectors but sold its small group of energy stocks in 2020 as renewed volatility highlighted the difficulties in forecasting commodity-driven businesses. Lead manager Don San Jose believes his team’s efforts are better spent on sectors with secular growth drivers and will steer clear of the sector until energy companies’ management teams prove they can be more judicious in their capital spending and production goals.

Recently initiated positions include a few healthcare-tech and software stocks. Both segments have been out of favor in 2022, and the managers have added to the holdings as their valuations declined.


| Above Average |

A skilled and stable team earns the strategy an Above Average People rating.

Managers Don San Jose and Dan Percella have impressed over their tenures. San Jose became comanager in 2007 and lead manager in February 2013. He and Percella have worked together for over a decade as members of J.P. Morgan’s small-core team and have managed the fund together since January 2014. Analysts Jonathan Brachle and Chris Carter--each with more than 15 years of industry experience--support the managers. Jesse Huang was recently named as an associate analyst. He’s spent about four years with the team in a junior role and has earned the trust to cover stocks across a few sectors.

The team sometimes collaborates with other JPMorgan Asset Management analysts but largely works independently. They’ve proved their worth over the years with strong stock picks, producing stellar risk-adjusted returns at this strategy.

While team members function as generalists, they tend to concentrate on certain sectors. For example, Carter covered healthcare stocks at Credit Suisse for five years and has continued to follow the sector since joining in 2015. Brachle, who came aboard in 2010, oversees technology. While the team launched a SMID-cap strategy in 2016 and assumed control of JPMorgan SMID Cap WOOSX in November 2020, its narrow investment focus helps keep its workload manageable even with the additional mid-cap coverage.


| Above 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 boasts an impressive track record since manager Don San Jose’s November 2007 start. The Institutional shares’ 9.9% annualized return through May 2022 handily beat both the Russell 2000 Index category benchmark’s 7.5% and the 8.5% of the Russell 2500 Index, which includes a heavy weighting in mid-caps. The strategy’s performance since San Jose took the lead in 2013 has also been strong.

The fund has consistently displayed a lower sensitivity to the market, resulting in positive alpha--a measure of risk-adjusted returns. The fund has produced positive alpha in nearly every rolling three-year period since San Jose joined in 2007. Picks in steady businesses such as animal health company IDEXX Labs IDXX, pool product distributor Pool Corp POOL, and medical supplier West Pharmaceutical WST have been key contributors.

The strategy is typically defensive; it shined in the 2008 financial crisis, 2011 Euro crisis, and late-2018’s pullback. Its results merely equaled the drawdown of the Russell 2000 in 2020’s coronavirus-driven bear market but performed better during 2022’s rough start. For the year to date through May, the fund’s 14.6% decline was 2 percentage points better than the bogy’s return. The differential would have been larger had it not been for the energy sector’s outperformance, though the strategy stands to recoup some relative performance if that dynamic subsides.



It’s critical to evaluate expenses, as they come directly out of returns. The share class on this report levies a fee that ranks in its Morningstar category’s second-cheapest quintile. Based on our assessment of the fund’s People, Process and Parent pillars in the context of these fees, we think this share class will be able to deliver positive alpha relative to the category benchmark index, explaining its Morningstar Analyst Rating of Silver.