JPMorgan Small Cap Value C OSVCX

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

The strategy's investment process inspires confidence and earns a High Process Pillar rating. Independent of the rating, analysis of the strategy's portfolio shows it has maintained an overweight in volatility exposure and an underweight in quality exposure compared with category peers. High volatility exposure is attributed to companies with a higher standard deviation of returns. And a low quality exposure is rooted in stocks with higher financial leverage and lower profitability. The strategy’s management team earns an Average People Pillar rating. The strategy's parent organization earns the firm an Above Average Parent Pillar rating. People Pillar and Parent Pillar ratings for this strategy are indirectly assigned by a Morningstar analyst rather than algorithmically derived. Please see the notes following each pillar section for more details. The details of assigning methods can be found in each pillar section.

JPMorgan Small Cap Value Fund earns a High Process Pillar rating.

The most substantial contributor to the rating is the parent firm's five-year risk-adjusted success ratio of 59%. The measure indicates the percentage of a firm's funds that survived and outperformed their respective category's median Morningstar Risk-Adjusted Return for the period. The parent firm's excellent risk-adjusted performance, as shown by its average 10-year Morningstar Rating of 3.2 stars, also bolsters the process. The stability of talent across its parent firm further strengthens the process. The firm's asset-weighted manager tenure of 16 years demonstrates its ability to retain portfolio managers.

This strategy, over time, has preferred smaller market-cap companies, compared with others in the Small Value Morningstar Category. But in terms of style (value/growth) exposure, it does not have much of a bias and resembles the category's typical portfolio. Looking at additional factor exposure, this strategy has exhibited a tilt toward high-volatility stocks or the shares of companies with histories of the higher standard deviation of returns, compared with Morningstar Category peers in the last few years. Such exposure tends to pay off when markets are hot and to be costly when they are not. In recent months, the strategy was more exposed to the Volatility factor compared with its Morningstar Category peers as well. The strategy has also had a defensive tilt, demonstrated by lower exposure to the quality factor than peers in recent years. This means the fund has avoided holding companies that are consistently profitable, growing, and have solid balance sheets. Such positions do not tend to provide much ballast for a portfolio. Similarly, in recent months, the strategy also had less exposure to the Quality factor than peers. Additionally, this strategy has demonstrated a preference for high-momentum stocks in these years. Momentum is based on the premise that stocks that have recently outperformed will continue to outperform, and those that have underperformed will stay behind. In this month, the strategy also had more exposure to the Momentum factor over its peers. More information on a fund and its respective category's factor exposure can be found in the Factor Profile module within the Portfolio section.

The portfolio is overweight in real estate and healthcare relative to the category average by 5.5 and 3.3 percentage points, respectively. The sectors with low exposure compared to category peers are industrials and consumer cyclical, underweight the average by 5.9 and 3.5 percentage points of assets, respectively. The portfolio is positioned across 370 holdings and is less top-heavy than peers. Specifically, 9.8% of the fund’s assets are concentrated within the top 10 fund holdings, compared to the category average's 27.7%. And finally, in terms of portfolio turnover, this fund trades less frequently than the category’s average, potentially limiting costs to investors.

Phillip D. Hart, the longest-tenured manager on the strategy, provides strong guidance, bringing forward 13 years of portfolio management experience. The average Morningstar Rating of the strategies they currently manage is 2.7 stars, reflecting below-average risk-adjusted performance relative to category peers. Phillip D. Hart has an adequate backdrop of support, drawing on three additional listed managers, averaging nine years of portfolio management experience. As a team, they manage seven investment vehicles together, with solid long-term prospects. The strategies average a Bronze asset-weighted Morningstar Medalist Rating, indicating a position to deliver positive alpha in aggregate. The management team is invested in the fund, but the maximum investment by any manager is between$ 100,000 and$ 500,000. An investment of more than$ 1 million would be ideal to align managers' interests with those of the fund's investors.

Note: The People Pillar rating is indirectly assigned by an analyst. The longest-tenured manager of the fund also manages a different product rated by an analyst. Their analyst-assigned People Pillar rating is combined here with the People scores (algorithmic or analyst-assigned) for the fund’s other managers on a tenure-weighted basis.

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.

Specifically, over the past 10-year period, this share class trailed its category's average return by an annualized 1.7 percentage points. It also trailed the category benchmark, Russell 2000 Value Index, by an annualized 1.4 percentage points over the same period. Although the rating does not hinge on one-year performance figures, it is notable that this share class lost 10.6%, a sizable 7.3-percentage-point loss over its average peer. This places it within the bottom 10% of its peer group.

When risk is properly accounted for, the strategy is not any more compelling. The share class trailed the 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 10-year period, against the category group index: a benchmark that encapsulates the performance of the broader asset class.

It is good practice to weigh them heavily in any investment evaluation. This share class imposes a fee that places it in its Morningstar Category's highest quintile. Despite this fee, the fund’s People, Process, and Parent Pillars indicate this share class can produce positive alpha relative to its category benchmark, leading to its Morningstar Medalist Rating of Bronze.