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JPMorgan Mortgage-Backed Securities I OMBIX

Medalist Rating as of | See JPMorgan Investment Hub
  • NAV / 1-Day Return 9.98  /  0.30 %
  • Total Assets 5.1 Bil
  • Adj. Expense Ratio
    0.400%
  • Expense Ratio 0.400%
  • Distribution Fee Level Below Average
  • Share Class Type Institutional
  • Category Intermediate Core Bond
  • Credit Quality / Interest Rate Sensitivity
  • Min. Initial Investment 1,000,000
  • Status Open
  • TTM Yield 3.39%
  • Effective Duration 5.79 years
unlocked

Morningstar’s Analysis OMBIX

Medalist rating as of .

This MBS-focused intermediate core bond offering earns a People upgrade.

Our research team assigns Silver ratings to strategies that they have a high conviction will outperform the relevant index, or most peers, over a market cycle on a risk-adjusted basis.

This MBS-focused intermediate core bond offering earns a People upgrade.

Senior Analyst Paul Olmsted

Paul Olmsted

Senior Analyst

Summary

Utilizing a meticulous and effective bond-picking approach, JPMorgan Mortgage-Backed Securities’ experienced securitized specialists and vast fixed-income resources merit a People Pillar rating upgrade to High from Above Average.

Firm veterans Rick Figuly, Andy Melchiorre, and Michael Sais back up their experience with results. This team of securitized specialists effectively collaborates on decisions to give them an edge over most rivals. Sais has managed the fund since 2005, but Figuly (2015), head of J.P. Morgan’s value-driven core bond team, and mortgage-backed securities specialist Melchiorre (2019) oversee the day-to-day of this strategy. Still, it’s very much a team effort, with the managers conducting bottom-up research and drawing on specialized portfolio managers and a growing team of seven securitized analysts for ideas and ongoing monitoring.

The strategy’s MBS emphasis distinguishes itself from most of its intermediate core Morningstar Category peers and leverages the team's extensive securitized expertise. J.P. Morgan's quarterly investment committee helps shape the macro outlook, while weekly sector meetings and daily interactions guide portfolio construction. These value-driven managers employ rigorous fundamental analysis to evaluate agency and nonagency MBS of various types and structures that meet their stringent standards, identifying good relative value and favorable prepayment characteristics. The portfolio predominantly consists of agency residential and commercial MBS, typically accounting for 65%-75% of assets, which sets it apart from the typical category range for similar bonds of 25%-30% of assets.

The strategy’s relatively unique contours, including its absence of corporate bonds, cause it to lag most rivals in periods favorable to credit, but its high-quality, mortgage-centric holdings tend to give it a boost when credit is out of favor. This resiliency and strong security selection have paid off with compelling long-term results. Since Sais’ tenure began in July 2005, the I shares’ 3.6% annualized return through August 2023 beat the Bloomberg US Aggregate Bond Index’s 2.9% and placed in the top decile of the distinct intermediate core category. Results versus peers were even better when adjusting for volatility; its Sharpe ratio (a measure of excess return relative to excess standard deviation) ranked best among rivals.

Rated on Published on

A robust, disciplined approach that emphasizes cash flow stability and prepayment protection alongside meticulous security selection earns the strategy an Above Average Process rating.

Senior Analyst Paul Olmsted

Paul Olmsted

Senior Analyst

Process

Above Average

The process begins with J.P. Morgan’s quarterly investment meeting, which sets macro themes for the subsequent three to six months while weekly sector meetings stress relative value ideas and tactical portfolio positioning. Strong daily communication between the managers and across the platform ensures the best ideas make it into the portfolio, and they are very selective about the bonds that make the cut. Underlying pool analysis, cash flow stability, and relative value drive security selection. The managers’ penchant for MBS structures that limit prepayment sensitivity avoids generic pass-throughs or to-be-announced forward contracts, instead favoring mortgage pools with specific characteristics.

The managers keep in mind the Bloomberg US MBS Index when building the portfolio. Stakes in a variety of agency mortgage-backed assets make up the bulk of the portfolio (65%-75%), while the remainder (10%-30%) consists of a mix of U.S. Treasuries, commercial MBS, nonagency MBS, and asset-backed securities. Duration (a measure of interest-rate sensitivity) and yield-curve calls are secondary; the team keeps duration within a year of its benchmark, which is typically more variable and shorter than that of most peers and the Aggregate Index. The managers use mortgage derivatives, such as principal- and interest-only bonds, moderately given the higher volatility of these structures.

The fund’s heavy MBS stakes make it an outlier in the intermediate core category where most constituents manage to the Aggregate Index, which features Treasuries, investment-grade corporates, and agency MBS.

The managers actively adjust the fund’s securitized stakes across agency MBS and commercial MBS (a combined 71% of assets as of June 2023), nonagency MBS (10.9%), CMBS (9.9%), Treasuries (6.1%), and ABS (1.0%). Their cautious outlook and better relative value led to a 6-percentage-point increase in its agency MBS and about a 3.5-percentage-point decrease in nonagency RMBS since mid-2021. Within nonagency bonds, they favor the better prepayment protection offered by CMBS. Exposure to Treasuries has remained elevated relative to early 2020, when it was only about 1% of assets.

At 81% in June 2023, AAA bond exposure dominated the portfolio and was 18 percentage points higher than the category average. To keep up with peers, the managers prefer to take non-AAA risk within the nonagency securitized bucket; this 21.7% stake fell from 25% a year earlier.

Keeping duration in line with the Bloomberg US MBS Index subjects the fund to bigger shifts in interest-rate sensitivity than most peers experience. For example, as long-term yields rose beginning in 2022, duration lengthened to 5.9 years (as of July 2023) from around 3.0 years in July 2021. Over the same period, the 6.3-year peer median duration was nearly unchanged.

Rated on Published on

Recognition for how this team’s veteran managers apply their MBS expertise and collaborate with the vast resources of J.P. Morgan’s global fixed-income platform earns a People upgrade to High from Above Average.

Senior Analyst Paul Olmsted

Paul Olmsted

Senior Analyst

People

High

Managers Rick Figuly, Andy Melchiorre, and Michael Sais capably lead this offering. Figuly’s J.P. Morgan career began in 1993; he joined this fund in 2015 and became head of the U.S. core bond team in late 2019. MBS specialist Melchiorre is the relative newcomer, joining the fund in 2019, but his industry experience dates back to 2008. Sais has the longest tenure on the fund (since 2005) but cedes the day-to-day management to Figuly and Melchiorre.

Alongside this team, the firm’s large network of fixed-income specialists helps to guide macro positioning and contribute bottom-up ideas. While team members conduct much of their own bottom-up research, they also draw on specialized portfolio managers and a growing group of securitized analysts. This seven-person securitized research cohort, led by Sajjad Hussain since 2021, is responsible for analysis and monitoring and collaborates with the managers on investment ideas that meet their stringent standards; they plan to add another analyst to the fold. The management team has been stable, with no turnover of any key contributors over the past five years.

The managers’ personal ownership aligns their interests with investors’. Figuly and Melchiorre each have between $100,000 and $500,000 and Sais more than $1 million.

Rated on Published on

A well-resourced, thoughtful, and disciplined steward of client assets, JPMorgan Asset Management maintains an Above Average Parent rating.

Associate Director Emory Zink

Emory Zink

Associate Director

Parent

Above Average

As of 2022, this investment stalwart manages more than USD 2.5 trillion in AUM. Composed of various global cohorts and diverse 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.

Rated on Published on

This MBS-focused portfolio, along with strong security selection, have produced impressive long-and short-term performance records.

Senior Analyst Paul Olmsted

Paul Olmsted

Senior Analyst

Performance

Since longest-tenured manager Michael Sais’ July 2005 start, the I shares’ 3.6% annualized return through August 2023 beat the Aggregate Index’s 2.9% and placed in the top decile of the distinct intermediate core category. Results versus peers were even better when adjusting for volatility; the I shares’ Sharpe ratio (a measure of excess return relative to excess standard deviation) ranked best among rivals. Annualized absolute and risk-adjusted returns over the past three-, five-, and 10-year periods are similarly strong.

The fund’s MBS and higher-quality biases have helped damp volatility. For example, its annualized 10-year 3.4% standard deviation was lower than the 4.3% of the Aggregate Index benchmark and median peer. And in stress periods the fund consistently holds up better; when corporate bond spreads widened during 2018’s fourth quarter, the fund’s 2.3% gain beat its average peer’s 1.4%. And when long-term yields rose in 2022 amid higher inflation concerns, the strategy’s shorter duration profile help limit its loss to 10.1% versus a 13.3% drop for its median rival.

Despite its enviable track record, the fund sometimes behaves differently than most of its peers. In periods that favor corporate bonds, it has lagged rivals with larger stakes in this sector. And its variable duration profile may not be as effective a diversifier to riskier assets as traditional, longer-duration peers in certain periods.

Published on

It’s critical to evaluate expenses, as they come directly out of returns.

Senior Analyst Paul Olmsted

Paul Olmsted

Senior Analyst

Price

Based on our assessment of the fund’s People, Process, and Parent Pillars in the context of these expenses, we think this share class will be able to deliver positive alpha relative to the category benchmark index, explaining its Morningstar Medalist Rating of Silver.

Published on

Portfolio Holdings OMBIX

  • Current Portfolio Date
  • Equity Holdings 0
  • Bond Holdings 2256
  • Other Holdings 27
  • % Assets in Top 10 Holdings 7.2
Top 10 Holdings
% Portfolio Weight
Market Value USD
Sector

JPMorgan Prime Money Market Inst

2.50
107,673,352
Cash and Equivalents

United States Treasury Bonds 2.375%

1.92
82,481,054
Government

United States Treasury Bonds 1.125%

1.09
47,045,078
Government

Federal National Mortgage Association 2.5%

0.98
42,143,410
Securitized

Federal National Mortgage Association

0.50
21,622,450
Securitized

Fnma Pass-Thru I 3.67%

0.47
20,162,847
Securitized

Fnma Pass-Thru I 2.53%

0.47
20,086,886
Securitized

Fnma Pass-Thru I 3%

0.46
19,643,894
Securitized

Federal National Mortgage Association

0.45
19,305,997
Securitized

Federal National Mortgage Association

0.44
19,033,138
Securitized