JPMorgan SMID Cap Equity’s proven and stable team applies a methodical approach centered on quality. Its three cheapest share classes earn a Morningstar Medalist Rating of Silver, while the three more expensive ones are rated Bronze.
Managers Don San Jose and Dan Percella lead a small but capable team of three analysts. They have managed this strategy since April 2016 in separate accounts but inherited this mutual fund offering in November 2020. The managers know each other well, having worked together on sibling strategy JPMorgan Small Cap Equity VSEIX since 2008. In addition to their core group of five, they also occasionally collaborate with other J.P. Morgan Asset Management analysts. Overall, San Jose, Percella, and their team have proven their worth over the years with strong stock picks, producing stellar risk-adjusted returns.
The team’s consistent investment approach is key to this success. It focuses on companies operating in narrow niches that can leverage their competitive positioning to protect and grow their returns on capital at rates higher than the market foresees. These traits, along with a preference for earnings and free cash flow over top-line revenue growth, lead them to steadier business models. This process is a carbon copy of their highly successful small-cap strategy but ventures further into mid-cap territory. The focus of their approach also helps the relatively small team navigate their expansive universe.
Unfortunately, their good historical record running this strategy has not yet translated to the mutual fund. From the separate account’s inception in April 2016 through March 2023, the composite’s 11.3% annualized return (gross of fees) beat the Russell 2500 Index by 1.9 percentage points; however, the mutual fund has lagged the index since San Jose and Percella took over in November 2020. The strategy typically shines when markets decline, but it struggled in 2022 owing to a lack of exposure to the surging energy sector. It ran into some more trouble in 2023 by owning a couple of the collapsed regional banks, but overall it remains in capable hands and is still a strong option.