JPMorgan U.S. Small Company's tightly constrained process relies on common factors, resulting in a Morningstar Analyst Rating of Neutral for all share classes.
This strategy attempts to beat the return of the Russell 2000 Index using a quantitative model, but its low level of differentiation keeps it from delivering much of an edge. The model screens the Russell 2000 Index for stocks displaying what the JPMorgan team running this strategy thinks is the best combination of value and quality characteristics. It builds a portfolio of 350-500 stocks, subject to constraints intended to avoid making any large bets. It considers stocks’ price multiples to assess valuation and analyzes company cash flows and management buyback policies to assess quality, among other criteria. A more exotic addition to the model is an algorithmic replication of JPMorgan analyst-assigned ratings designed to more accurately assess a stock’s quality attributes.
Lead manager Phil Hart, comanager Akash Gupta, and two other analysts scrutinize the model’s output, looking for abnormalities or exogenous factors, such as an impending legal ruling, that could likely influence a stock’s price. The team may also manually adjust a stock’s fundamental ranking if there is reason to emphasize one input metric over another. Hart and Gupta were joined by comanager Lindsey Houghton from November 2019 through June 2021, though he has left the firm. Others assumed Houghton’s coverage of consumer stocks and banks pending a replacement hire.
Despite Houghton’s departure, the team remains adequately resourced, particularly when combined with JPMorgan’s dedicated quant team, led by comanager Wonseok Choi, and an equity data science team. A member of the equity data science team who developed some of the factors currently used is now embedded with the group, part of structured equity head Hamilton Reiner’s vision to increase collaboration across the firm’s various research units.
While a blend between quality and value themes is a logical fit, investors shouldn’t expect this strategy to provide an enduring edge given its extremely diffuse portfolio.