JPMorgan Strategic Income Opports R5 JSORX

A sound investment process and strong management team underpin JPMorgan Strategic Income Opports R5's Morningstar Quantitative Rating of Silver. The portfolio maintains a sizable cost advantage over competitors, priced within the cheapest fee quintile among peers.

The strategy's effective investment philosophy supports an Above Average Process Pillar rating. Independent of the rating, analysis of the strategy's portfolio shows it has maintained a significant underweight position in BB rated bonds and debt with seven- to 10-year maturities compared with category peers. The management team's large personal investment in the strategy helps it earn an Above Average People Pillar rating. The strategy is part of a first-rate parent, as shown by a high lineup success ratio and overall reasonable fees. These attributes support its Above Average Parent Pillar rating.

Morningstar's evaluation of this fund's process seeks to understand management's investment philosophy, and whether it has been applied consistently over time and can add value across the market cycle. JPMorgan Strategic Income Opports Fd earns an Above Average Process Pillar rating.

Compared with other funds in the Nontraditional Bond Morningstar Category, this fund, historically, hews closely to peers' credit and interest-rate sensitivity. 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 large underweight position on BB rated bonds compared to peers. Additionally, there's been a notable bias away from debt with seven- to 10-year maturities. And finally, the fund leans meaningfully toward cash.

This strategy's 12-month yield is 1.4%, lower than its average peer's 3.3%. It also has a 3.5% 30-day SEC yield (a measure similar to yield-to-maturity). A lower yield tends to indicate lower credit risk. The portfolio holds assets with a higher average surveyed credit quality of BBB, compared with the typical peer's BB and its non-investment grade stake is 6% of assets, compared with its average peers' 26%. Strategies with lower credit risk can typically withstand market turmoil more effectively.

JPMorgan Strategic Income Opports Fd benefits from sizable personal investments from managers and its longest-tenured manager, warranting an Above Average People Pillar rating. William H. Eigen’s veteran status, with 21 years of portfolio management experience, imprints a positive mark on the strategy as it brings a wealth of experience to the table. The average Morningstar Rating of the strategies they currently manage is 4.2 stars, demonstrating stellar risk-adjusted performance. Although the team is small, it is a solid supporting cast. Together, the three listed managers boast more than an average of 18 years of portfolio management experience. The highest personal investment in this offering by any of its managers is at least $1 million. We view an investment of this size positively, as it is large enough to help align managers' interests with those of 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 nicely, outlasting both its peers and the category benchmark. Over a 10-year period, this share class outpaced the category's average return by 96 basis points annualized. And it also outperformed the category index's, ICE BofA US 3 Month Deposit OR CM Index's, gain by an annualized 1.3 percentage points over the same period. Although the overall rating does not hinge on one-year performance figures, it is notable that this share class lost 0.1%, an impressive 5.6-percentage-point lead over its average peer, placing it within the top 10% of its category.

When adjusting for risk, the fund is not shown in a favorable light. The share class trailed the index with a lower Sharpe ratio, a measure of risk-adjusted returns, over the trailing 10-year period. In addition to its subpar risk-adjusted performance, the strategy also took on elevated risk, as measured by a higher standard deviation, 2.3%, than the benchmark, 0.3%. However, the share class proved itself effective by generating positive 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 imperative to evaluate fees, which compound over time and diminish returns. This share class is in the cheapest quintile of its Morningstar Category. Its affordable expense ratio, taken together with the fund’s People, Process, and Parent Pillars, suggests that this share class has the ability to deliver positive alpha relative to its category benchmark, leading to its Morningstar Quantitative Rating of Silver.