JPMorgan U.S. Small Company added another factor and another comanager in 2022, but its process still relies on several common factors, resulting in a Morningstar Analyst Rating of Neutral across all share classes.
This strategy combines quantitative and fundamental elements to try to outperform the Russell 2000 Index. It’s sensible and repeatable, but not very distinctive. It starts with a quantitative model that screens the Russell 2000 for stocks displaying the best combination of value, quality, and momentum characteristics. Previously the model only looked at value and quality factors, but within the past year the team began looking at momentum, focusing on trends in short interest among several others. The model also includes more advanced features, such as language processing that analyzes earnings call transcripts for possible indications about quality and momentum. Ultimately, the model builds a diffuse portfolio of 350 to 500 stocks, which limits the strategy’s ability to stand out. Indeed, the fund’s active share, a measure of portfolio differentiation from a benchmark, regularly ranks among the lowest in the small-blend Morningstar Category.
Five comanagers, including recently promoted Robert Ippolito, help run this strategy. Lead manager Phil Hart pilots the efforts on the fundamental side, while Wonseok Choi heads the quant group, but there have been several moving pieces around them. In September 2021, comanager Lindsey Houghton left for Harbor Capital after more than 15 years with J.P. Morgan. They also lost a pair of quant analysts in 2022 after losing one in 2020. The remaining team has the benefit of leaning upon some of J.P Morgan’s broader resources, but the increased turnover is a concern.
Under Hart’s leadership, performance has been decent. From Hart’s start in November 2010 through October 2022, the fund’s institutional shares returned 10.4%, slightly ahead of the Russell 2000 Index’s 9.8%. A recent stretch of strong performance helped these numbers, as the strategy beat the index by more than 4 percentage points over the trailing 12 months ending in October. The strategy’s target factors have been in favor recently, and their attractiveness will largely dictate the fund’s performance.