JPMorgan Small Cap Value R4 JSVQX

The strategy charges fees in line with its similarly distributed peers, priced within the middle quintile.

The strategy's effective investment philosophy supports a High Process Pillar rating. Independent of the rating, analysis of the strategy's portfolio shows it has maintained an overweight in volatility exposure and an underweight in quality exposure compared with category peers. High volatility exposure is attributed to companies with a higher standard deviation of returns. And a low quality exposure is rooted in stocks with higher financial leverage and lower profitability. The strategy’s management team earns an Average People Pillar rating. The strategy's parent organization earns the firm an Above Average Parent Pillar rating. People Pillar and Parent Pillar ratings for this strategy are indirectly assigned by a Morningstar analyst rather than algorithmically derived. Please see the notes following each pillar section for more details. The details of assigning methods can be found in each pillar section.

JPMorgan Small Cap Value Fund earns a High Process Pillar rating.

The main contributor to the rating is the parent firm's five-year risk-adjusted success ratio of 57%. The measure indicates the percentage of a firm's funds that survived and beat their respective category's median Morningstar Risk-Adjusted Return for the period. The parent firm's excellent risk-adjusted performance, as shown by its average 10-year Morningstar Rating of 3.3 stars, also bolsters the process. Respectable risk-adjusted performance also reinforces the process, as shown by the fund's five-year alpha calculated relative to the category index, which suggests that the managers have shown skill in their allocation of risk.

This strategy does not differentiate itself from its Small Value category peers in terms of size and style exposure. Examining additional factor exposure, the managers have continually exhibited a willingness to take risks over the last few years, demonstrated by the portfolio's high volatility exposure. This is a higher-risk, higher-reward approach. In recent months, the strategy was more exposed to the Volatility factor compared with its Morningstar Category peers as well. This strategy has also tilted toward low-quality stocks, companies with higher financial leverage and lower profitability over peers in recent years. Such positions do not tend to provide much ballast for a portfolio. Similarly, in recent months, the strategy also had less exposure to the Quality factor than peers. In addition, this strategy holds highly liquid companies. Such stocks may have less potential upside than illiquid holdings, but they are easier to trade during market downturns. In this month, the strategy also had more exposure to the Liquidity factor over its 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 real estate and healthcare relative to the category average by 5.6 and 3.7 percentage points, respectively. The sectors with low exposure compared to category peers are industrials and consumer cyclical, underweight the average by 5.2 and 4.8 percentage points of assets, respectively. The portfolio is composed of 371 holdings and is diversified among those holdings. In its most recent portfolio, 9.1% of the strategy's assets were concentrated in the top 10 fund holdings, as opposed to the category’s 28.1% average. And finally, in terms of portfolio turnover, looking at year-over-year movements, 79% of the fund's holdings have turned over, whether through increasing, decreasing, or changing a position.

The team is backed by Phillip D. Hart, the longest-tenured manager on the strategy, who provides 13 years of listed portfolio management experience. The average Morningstar Rating of the strategies they currently manage is 2.4 stars, reflecting below-average risk-adjusted performance relative to category peers. The team boasts an experienced corps of listed portfolio managers, with three others supporting Phillip D. Hart. Together, they average 10 years of listed portfolio management experience. As a team, they manage seven investment vehicles together, with a Bronze asset-weighted average Morningstar Medalist Rating, indicating the potential to deliver positive alpha in aggregate. The highest personal investment in the fund by any of its managers is between$ 100,000 and$ 500,000. 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.

Note: The People Pillar rating is indirectly assigned by an analyst. The longest-tenured manager of the fund also manages a different product rated by an analyst. Their analyst-assigned People Pillar rating is combined here with the People scores (algorithmic or analyst-assigned) for the fund’s other managers on a tenure-weighted basis.

As of 2022, this investment stalwart manages more than USD 2.5 trillion in AUM. Composed of various global cohorts and diverse 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.

It has provided subpar returns compared with peers, but similar returns compared with the category benchmark. Specifically, over the past seven-year period, this share class trailed its category's average return by an annualized 89 basis points. But despite the below-average returns, it matched the performance of the category benchmark, the Russell 2000 Value Index, over the same period.

When adjusting for risk, this fund is competitive. The share class outstripped the index with a higher Sharpe ratio, a measure of risk-adjusted return, over the trailing five-year period. Notably, these strong risk-adjusted results have not come with more volatility for investors. This strategy took on similar risk as the benchmark, as measured by standard deviation. However, the share class proved itself ineffective as it was unable to generate alpha, over the same five-year period, against the category group index: a benchmark that encapsulates the performance of the broader asset class.

It is good practice to weigh them heavily in any investment evaluation. This share class is in the middle quintile of its Morningstar Category. Its average fee, taken together with the fund’s People, Process, and Parent Pillars, indicates that this share class is well-positioned to generate positive alpha relative to its category benchmark, explaining its Morningstar Medalist Rating of Silver.