JPMorgan Small Cap Value R2 JSVZX

Strength in JPMorgan Small Cap Value R2's Process Pillaris partially offset by an Average People Pillar rating, leading to a Morningstar Quantitative Rating of Neutral. Fees are a weakness here. The strategy's lofty fees are a high hurdle to clear, as it is priced within the second-highest quintile among peers.

The strategy benefits from the longest-tenured manager on the team's lengthy experience. This is a positive driver of the strategy's Average People Pillar rating. The strategy's sensible investment philosophy 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 is part of a first-rate parent, as shown by a high lineup success ratio and overall attractive fees. These attributes support its Above Average Parent Pillar rating.

Morningstar's style-agnostic evaluation of this fund's process seeks to understand whether the strategy has a performance objective and sensible, clearly defined, repeatable execution. JPMorgan Small Cap Value Fund earns an Above Average Process Pillar rating.

This strategy tends to hold smaller, more undervalued companies than its average peer in the Small Value Morningstar Category. Analyzing additional factors, 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 6.4 and 5.6 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 6.3 and 5.7 percentage points of assets, respectively. The portfolio is positioned across 431 holdings and is diversified among those holdings. In its most recent portfolio, 9.5% of the portfolio's assets were concentrated in the top 10 fund holdings, as opposed to the category’s 29.2% average. And in closing, 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.

The team at JPMorgan Small Cap Value Fund has the benefit of an experienced longest-tenured manager and an experienced corps of managers, but is still relatively unexceptional, earning the strategy an Average People Pillar rating. Phillip D. Hart, the longest-tenured manager on the strategy, provides strong guidance, bringing forward 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 a Bronze 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.

This strategy’s Retirement share class has held up poorly, falling behind both its peers and the category benchmark. Over a 10-year period, this share class undershot its average peer by 62 basis points annualized. It was also not able to clear the hurdle set by the category index, Russell 2000 Value Index, where it trailed by an annualized 83 basis points over the same period.

Even when adjusting for risk, the fund does not hold up. The share class failed to beat the index with a lower Sharpe ratio, a measure of risk-adjusted returns, over the trailing 10-year period. But notably, these subpar risk-adjusted results have not come with a rockier ride for investors. This strategy took on similar risk as the benchmark, as measured by standard deviation. Finally, 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.

It is important to pay attention to fees, as lower-cost investments maximize investors' returns. This share class is in the second-costliest quintile of its Morningstar Category. Its pricey fee, taken together with the fund’s People, Process, and Parent Pillars, results in a judgment that this share class could struggle to deliver positive alpha against its category benchmark, leading to its Morningstar Quantitative Rating of Neutral.