JPMorgan High Yield Municipal C JTICX Fund Analysis

JPMorgan High Yield Municipal C boasts strong Process and People Pillar ratings, but other weaknesses hold this strategy's Morningstar Quantitative Rating at 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'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 B rated bonds and an overweight in debt with 10- to 15-year maturities compared with category peers. The management team's considerable industry experience earns it an Above Average People Pillar rating. The strategy has a solid parent that earns an Above Average Parent Pillar rating. This firm has had a high lineup success ratio and overall attractive fees.

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 High Yield Municipal Fund earns an Above Average Process Pillar rating.

Compared with other funds in the High Yield Muni Morningstar Category, this fund's cash position and interest-rate sensitivity are historically in line with peers.

This strategy's 12-month yield is 3.2%, lower than its average peer's 3.6%. Plus, its 30-day SEC yield (a measure similar to yield-to-maturity) sits at 4.1%. A lower yield tends to indicate lower credit risk. Yet that's not the case here. The portfolio's average surveyed credit quality is on par with peers, with both the fund and the average being rated BB.

JPMorgan High Yield Municipal Fund's experienced corps of managers and strong longest-tenured manager support its Above Average People Pillar rating. Richard D. Taormina’s veteran status, with over 25 years of portfolio management experience, brings a wealth of experience to the table. The average Morningstar Rating of the strategies they currently manage is 2.5 stars, demonstrating underwhelming risk-adjusted performance. Richard D. Taormina has an experienced backdrop of support. The three listed managers boast over 25 years of average portfolio management experience.

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.

Trailing both category peers and the index, this strategy’s C share class has had a weak track record in the High Yield Muni category. Specifically, over the past 10-year period, this share class trailed its category's average return by an annualized 81 basis points. It also trailed the category benchmark, Bloomberg Barclays 65% High Grade / 35% High Yield Bond Index, by an annualized 1.6 percentage points over the same period. Although one-year performance does not factor heavily in the overall rating, it is worth mentioning that this share class lost 10.8%, a sizable 3.0-percentage-point loss over its average peer, placing it within the bottom 10% of its category group.

When risk is properly accounted for, the strategy is not any more compelling. The share class trailed 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.

Because fees compound over time and diminish returns, it is critical for investors to minimize expenses. This share class is in the second-costliest quintile of its Morningstar Category. Its steep fee, paired with the fund’s People, Process, and Parent Pillars, results in a judgment that this share class could struggle to produce positive alpha compared with its category benchmark, explaining its Morningstar Quantitative Rating of Neutral.