JPMorgan Small Cap Growth R2 JSGZX

A strong management team and sound investment process underpin JPMorgan Small Cap Growth 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 highest quintile among peers.

The longest-tenured portfolio manager's extensive experience drives the strategy's Above Average People Pillar rating. The strategy's investment approach stands out and earns an Above Average Process Pillar rating. The portfolio has been significantly underweight quality exposure and has an overweight in volatility exposure compared with category peers. Low quality exposure is attributed to stocks with higher financial leverage and lower profitability. And high volatility exposure is rooted in stocks that have a higher standard deviation of returns. 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 reasonable fees.

Morningstar's style-agnostic investment process evaluation looks for strategies with a philosophy distinctive enough to generate standout results in the future. JPMorgan Small Cap Growth Fund earns an Above Average Process Pillar rating.

This strategy hews closely to the market-cap and investment style of its Small Growth category peers. Looking at 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. This strategy has also exhibited a tilt toward high-volatility stocks, meaning companies that have a higher historical standard deviation of returns. This factor's exposure tends to pay off most prominently when markets are hot. And compared with category peers, the strategy historically has had more exposure. Additionally, this strategy has exhibited a tilt toward liquid assets, evidenced by consistently holding companies with relatively higher trading volume. This lends the managers flexibility during bear markets to sell without adversely affecting prices. And 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 healthcare and consumer cyclical relative to the average peer in its category by 4.5 and 3.1 percentage points in terms of assets, respectively. The sectors with low exposure compared to their category peers are financial services and basic materials, with financial services underweighting the average portfolio by 5.3 percentage points of assets and basic materials similar to the average. The strategy owns 126 securities and is less top-heavy than peers. Specifically, 17.6% of the strategy's assets are concentrated within the top 10 fund holdings, compared to the category’s 25.6% average. And finally, 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 Small Cap Growth Fund's longest-tenured manager and seasoned portfolio managers support its Above Average People Pillar rating. Eytan M. Shapiro, the longest-tenured manager on the strategy, provides strong guidance, bringing forward over 25 years of portfolio management experience. The average Morningstar Rating of the strategies they currently manage is 2.6 stars, demonstrating underwhelming risk-adjusted performance. Eytan M. Shapiro has an experienced listed co-manager. Together, they average 23 years of portfolio management experience. As a team, they manage two investment vehicles together, with a Silver asset-weighted average combined Morningstar Analyst and Quantitative Rating, demonstrating their potential to deliver positive alpha in aggregate.

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.

Outpacing both its peers and the category benchmark, this strategy’s Retirement share class, has had a noteworthy track record. This share class led its average peer by an annualized excess return of 1.3 percentage points over a 10-year period. And it also beat the category index's, Russell 2000 Growth Index's, gain by an annualized 1.6 percentage points over the same period.

The risk-adjusted performance only continues to make a case for this fund. The share class had a higher Sharpe ratio, a measure of risk-adjusted return, than the index over the trailing 10-year period. Often, higher returns are associated with more risk. However, this strategy stayed in line with the benchmark's standard deviation. However, 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.

By minimizing costs, investors can maximize their expected returns. This share class levies a fee that places it in its Morningstar Category's highest quintile. Despite this fee, the fund’s People, Process, and Parent Pillars indicate this share class can produce positive alpha relative to its category benchmark, leading to its Morningstar Quantitative Rating of Bronze.