JPMorgan Mid Cap Growth C OMGCX

JPMorgan Mid Cap Growth’s team has the experience and ability needed to prosper even after its longtime lead manager retires, earning most share classes a Morningstar Analyst Rating of Bronze, while the two most expensive ones earn Neutral.

A logical successor will take the reins when veteran manager Tim Parton retires in early 2024. Felise Agranoff, who has comanaged this strategy since year-end 2015, will assume Parton’s role. It’s a position she is well prepared for. She has spent her entire 18-year career at J.P. Morgan and has worked alongside Parton for the vast majority of it. She earned her position as comanager thanks to strong performance as an analyst on the firm’s small- and mid-cap growth team. The fund’s results since she joined Parton as comanager are strong relative to mid-cap growth Morningstar Category peers and the Russell Midcap Growth Index category benchmark. While Parton maintained final say on trading activity, the two state that they collaborate on decisions. It's a plus that Parton has given a long lead time to facilitate the transition.

Agranoff has gained a partner in newly named comanager Daniel Bloomgarden. Bloomgarden has served as a consumer analyst for seven years on the strategy and brings 25 years of industry experience to the table. Bloomgarden’s consumer picks have stood out over his tenure.

Agranoff developed under Parton’s mentorship, and the two say they are philosophically aligned. That being said, there are minor differences. For instance, Parton at times may be more inclined to invest in a stock or industry that is out of favor or trading cheaply but with no apparent catalyst to recover. Parton pushed the portfolio back into the energy sector in mid-2021, which proved to be prescient timing as that sector subsequently rallied. However, such trades are likely to be on the margin, as the bulk of ideas should come from traditional growth sectors such as technology, healthcare, and consumer regardless of the market environment.

Unlike many growth-oriented rivals, this strategy has performed well over both phases of the recent growth-stock boom-bust cycle. It captured strong gains when growth was rallying in 2019 and 2020 but also has survived relatively well during the growth-stock pullback in 2021 and 2022. Parton and crew reduced exposure to high-growth stocks in time to avoid most of the subsequent carnage. It remains to be seen whether Agranoff can replicate such successful calls under her own watch, but her background gives her a reasonable shot.

This strategy's approach has some good principles but is broad in scope and not particularly differentiated from peers, resulting in an Average Process rating.

The small- and mid-cap team at J.P. Morgan hunts for stocks with underappreciated growth prospects believed to have some form of enduring advantage. Analysts scour the mid-growth universe with the help of a quantitative model that looks for stocks with good fundamentals and price momentum relative to their valuation. Analysts aren’t confined to the model and find ideas in their sectors based on interactions with competitors and suppliers, company meetings, and industry conferences.

While the portfolio has owned some stable growers, it has also invested in stocks with less certain cash flows such as biotech companies. Combined with the managers' willingness to own stocks with lofty growth expectations, the strategy tends to produce more volatile performance than its benchmark. Still, the managers are cognizant of valuation risk and reduced the portfolio’s exposure to high-growth stocks in 2020 and 2021 before the subsequent market selloff.

The managers typically keep their active weightings small to limit risk, though that also links the portfolio to the benchmark, which can sometimes backfire. Streaming leader Roku ROKU was the fund’s largest position in June 2021 despite a wide range of outcomes for its business prospects, but the managers weren’t alarmed because it was a large benchmark component. Roku’s shares subsequently collapsed about 80% from their peak as of July 2022.

This portfolio of 90-120 stocks is well diversified and tends to roughly mirror the composition of its Russell Midcap Growth Index benchmark. As is to be expected for a growth strategy, most of the assets tend to be invested in the technology, healthcare, and consumer discretionary sectors. However, there is some differentiation. The portfolio has maintained an overweighting in financials stocks since 2016 and is usually overweight in industrials. Investors shouldn’t expect much in the energy, utilities, or consumer staples sectors.

The dispersion of stock weightings in the portfolio is relatively flat. The largest positions at any given time tend to be around 2%-3% of assets, while the average weighting comes in around 1%.

The managers’ attention to the benchmark keeps the portfolio anchored in the mid-growth section of the Morningstar Style Box. Cash usually runs below 2% of assets.

A preference, on balance, for fast-growing companies typically skews the fund away from entrenched businesses with established profits and toward those looking to take share from incumbents or blaze their own trail. Portfolio level measures of profitability tend to run below the benchmark, while measures of expected and trailing growth tend to run higher.

A key manager transition will take place in early 2024 when longtime manager Tim Parton retires, but comanager Felise Agranoff has the background to pick up where he left off. The strategy retains an Above Average People rating.

Having spent the vast majority of her 18 years at J.P. Morgan on this team as an analyst and then comanager, Agranoff is an unsurprising successor. She’s been mentored by Parton over her career and has done the same for others. While Parton has maintained final say on portfolio decisions, Agranoff has been a key collaborator and wielded particularly authority in financials and industrials stocks (her sectors of expertise.)

Agranoff and newly named comanager Daniel Bloomgarden oversee an experienced six-member analyst team averaging 16 years in the industry. While adequately staffed, the team lost a senior technology analyst in 2019 and a second tech analyst in 2021. Tech has been an area of strength historically, so the departures are important, though the firm addressed its need when it hired Eric Ghernati in early 2020 to assume the lead position. The strategy's tech holdings have performed well since he arrived, albeit in a limited sample. Healthcare, the second-largest sector in the mid-cap growth universe next to tech, is on steady footing behind analyst Matt Cohen, who has worked on the team for 17 years.

The group does most of the heavy lifting but can also lean on J.P. Morgan's central research analyst team.

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.

Since Tim Parton became manager in October 2004, the institutional shares' 10.9% annualized return through July 2022 outpaced the mid-cap growth category average and the Russell Midcap Growth Index by 2.0 and 0.6 percentage points, respectively. The fund endured greater volatility to achieve those results, but it still had an edge on a risk-adjusted basis. Its Sharpe ratio, for example, came in just ahead of its bogy's over the same time period.

The fund's momentum bias helped produce particularly strong performance from 2017 through 2020 as the market rewarded high-multiple stocks with lofty expectations for future growth. Perhaps no stock better resembles this trend than electric auto manufacturer Tesla, whose shares skyrocketed in 2020. The fund got in early on Tesla, first buying in 2011 when the stock generally traded below $10 a share. Parton sold it in September 2020 when it hovered around $400 a share. It’s been one of the largest contributors to performance, although the fund had other major successes with stocks such as software company Veeva Systems VEEV and generator company Generac Holdings GNRC.

This fund will typically struggle when the market sours on growth stocks: It finished in the bottom decile of peers in 2016. However, shrewd positioning helped avoid a similar fate in 2021 and 2022. While the fund has trailed the majority of peers over these stretches, the underperformance has been modest.

It’s critical to evaluate expenses, as they come directly out of returns. The share class on this report levies a fee that ranks in its Morningstar category’s costliest quintile. Such high fees stack the odds heavily against investors. Based on our assessment of the fund’s People, Process and Parent pillars in the context of these fees, we don’t think this share class will be able to deliver positive alpha relative to the category benchmark index, explaining its Morningstar Analyst Rating of Neutral.