JPMorgan Small Cap Value R5 JSVRX

JPMorgan Small Cap Value R5’s strong process and parent firm are the foundation for this strategy's Morningstar Quantitative Rating of Bronze. The portfolio maintains a sizable cost advantage over competitors, priced within the second-lowest 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 quality exposure and 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 competitive lineup success ratio and overall reasonable fees. Finally, the strategy's longest-tenured manager is experienced, but still gets an Average People 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 Small Cap Value Fund earns an Above Average Process Pillar rating.

This strategy leans toward smaller, more undervalued companies compared with its average peer in the Small Value Morningstar Category. Looking at additional factor exposure, this strategy favors low-quality stocks. Such positions do not tend to provide much ballast for a portfolio. The strategy is also historically less exposed to the factor compared with Morningstar Category peers. This strategy also has an overweight bias to the volatility factor, meaning investing in stocks that have a higher historical standard deviation of returns. This contributes to a high-risk, high-reward approach. And compared with category peers, the strategy historically has had more exposure. Additionally, the managers do not exhibit a tilt toward momentum-oriented stocks, those currently on a winning streak. The latest portfolio has about average exposure compared with others in the equity fund universe. Momentum is based on the premise that stocks that have recently outperformed will continue to, and those that have underperformed will stay behind. 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 real estate relative to the average peer in its category by 6.2 and 5.2 percentage points in terms of assets, respectively. The sectors with low exposure compared to their category peers are consumer cyclical and industrials, underweight the average by 6.2 and 4.7 percentage points of assets, respectively. The strategy owns 429 securities and is less top-heavy than peers. Specifically, 9.5% of the fund’s assets are concentrated within the top 10 fund holdings, as opposed to the category’s 29.5% average. And in closing, in terms of portfolio turnover, this portfolio trades more frequently than the average peer in its category, which may result in higher trading costs for investors and cause a drag on performance.

The team at JPMorgan Small Cap Value Fund has the benefit of an experienced longest-tenured manager and experienced portfolio managers, but is still relatively unexceptional, earning the strategy an Average People Pillar rating. The team is backed by Phillip D. Hart, the longest-tenured manager on the strategy, who provides 12 years of portfolio management experience. The average Morningstar Rating of the strategies they currently manage is 2.9 stars, demonstrating average risk-adjusted performance. The team boasts an experienced corps of listed portfolio managers, with four others supporting Phillip D. Hart. Together they average 10 years of portfolio management experience. As a team, they manage three investment vehicles together, with solid long-term prospects. The strategies average a Bronze asset-weighted combined Morningstar Analyst and Quantitative Rating, indicating a position 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.

This strategy’s Retirement share class has had varying fortunes. It has been successful over the short term but has been weak over the long term. Over the past five years, the fund outstripped the category index, the Russell 2000 Value Index, by 54 basis points, and equaled the category's average return. More importantly, when looking across a longer horizon, the fund failed to stand out. On a 10-year basis, this share class performed in line with the index.

The share class had a lower Sharpe ratio, a measure of risk-adjusted returns, than the index over the trailing 10-year period. This subpar risk-adjusted performance has not resulted in higher volatility, as measured by their standard deviation, which is close to the benchmark.

Low-cost investments routinely outperform high-cost investments. Thus, assessing cost is a critical step in any investment evaluation. This share class is in the second-cheapest quintile of its Morningstar Category. Its competitive fee, in conjunction with the fund’s People, Process, and Parent Pillars, indicates that this share class has high potential to deliver positive alpha relative to its category benchmark, explaining its Morningstar Quantitative Rating of Bronze.