JPMorgan Short Duration Bond C OSTCX

Fees are a weakness here. The strategy's lofty fees are a high hurdle to clear, as it is priced within the most expensive quintile among peers.

The strategy's effective investment philosophy supports an Above Average Process Pillar rating. Independent of the rating, analysis of the strategy's portfolio shows it has maintained an underweight position in corporate bonds and debt with over 30-year maturities compared with category peers. The management team's large personal investment in the strategy helps it earn an Above Average People Pillar rating. The strategy's parent organization earns the firm an Above Average Parent Pillar rating, and this rating is inherited from vehicles belonging to the same branding entity and is indirectly assigned by an analyst.

JPMorgan Short Duration Bond Fund earns an Above Average Process Pillar rating.

The leading factor in the rating is the parent firm's five-year risk-adjusted success ratio of 57%. The measure indicates the percentage of a firm's funds that survived and beat their respective category's median Morningstar Risk-Adjusted Return for the period. Strong risk-adjusted performance also bolsters the rating. This can be seen in the fund's five-year alpha calculated relative to the category index, which suggests that the managers have shown skill in their allocation of risk. Lastly, the process is limited by being an actively managed strategy. Historical data, such as Morningstar's Active/Passive Barometer, finds that actively managed funds have generally underperformed their passive counterparts, especially over longer time horizons.

Compared with other funds in the Short-Term Bond Morningstar Category, this fund has been consistently sensitive to interest-rate changes over the past few years. Opening the analysis to additional factors, the portfolio has displayed biases over time, whether towards or away from certain fixed-income instruments. Relative to the category average, the managers have been underweight corporate bonds in recent years. In the latest month, the strategy has also relatively underweighted corporate debt compared with Morningstar Category peers. Additionally, there's been a bias away from debt with longer than 30-year maturities over the past few years. Similarly, in recent months, the strategy also had less exposure to debt with longer than 30-year maturities than peers. Finally, during the past few years, the fund leaned meaningfully away from BBB rated bonds. In recent months, the strategy also had less exposure to BBB rated bonds compared to its peers.

This strategy has a modest 2.4% 12-month yield, lower than its average peers' 3.7%. It also has a 3.4% 30-day SEC yield (a measure similar to yield-to-maturity). While a lower yield may deliver less income, it also tends to indicate lower credit risk. But that isn't always the case. Over the past 12 months, the average yield of the fund has been lower than the average yield of its Morningstar Category peers. The portfolio's average surveyed credit quality is on par with peers, with both the fund and the average being rated A.

The number one contributor to the rating is its parent firm's five-year success ratio of 57%. The measure indicates the percentage of a firm's funds that survived and outperformed their respective category's median return for the period. The stability of talent across its parent firm also influences the rating. The firm's asset-weighted manager tenure of 19 years demonstrates its ability to retain portfolio managers. Lastly, the rating is limited by the instability of its management team. The fund last saw a manager change four years ago, which suggests that it could do more to retain its portfolio managers.

The strategy is backed by Toby Maczka, the longest-tenured manager, who has been a listed portfolio manager for six years. The strategies they currently manage have an average Morningstar Rating of 2.9 stars, demonstrating average risk-adjusted performance compared with category peers. Toby Maczka has an experienced listed co-manager. Together, they average 21 years of listed portfolio management experience. With at least one manager investing $1 million or more in this offering, investors can have some assurance that the team's interests are aligned with theirs.

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.

The share class lagged the category index, Bloomberg Barclays U.S. Aggregate Government/ Credit 1-3 Year Index, with a lower Sharpe ratio, a measure of risk-adjusted returns, over the trailing 10-year period. This subpar risk-adjusted performance has not resulted in higher volatility, as measured by their standard deviation, which is close to the benchmark. Finally, the share class proved itself ineffective as it was unable to generate alpha, over the same period, against the category group index: a benchmark that encapsulates the performance of the broader asset class.

The fund continues to have a disappointing track record viewed through the lens of long-term absolute returns. The share class underperformed the category index by an annualized 59 basis points over the past 10 years. The strategy also trailed the category average by an annualized 74 basis points over the same 10-year period. Although one-year performance does not factor heavily in the overall rating, it is worth mentioning that this share class returned 4.2%, a sizable 1.1-percentage-point loss over its average peer, placing it within the bottom 10% of its category group.

This share class lands in the costliest quintile of its Morningstar Category. Its unattractive expense ratio, considered jointly with the fund’s People, Process, and Parent Pillars, indicates that this share class could struggle to deliver positive alpha against its category benchmark, explaining its Morningstar Medalist Rating of Neutral.