JPMorgan Small Cap Value C OSVCX

Strength in JPMorgan Small Cap Value C's Process Pillaris partially offset by an Average People Pillar rating, leading to a Morningstar Quantitative Rating of Neutral. 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 benefits from the longest-tenured manager on the team's lengthy experience. This is a positive driver of the strategy's Average People Pillar rating. The strategy's effective investment approach earns an Above Average Process Pillar rating. The portfolio has been significantly underweight quality exposure and has an overweight in volatility exposure compared with category peers. Low quality exposure is attributed to stocks with higher financial leverage and lower profitability. And high volatility exposure is rooted in stocks that have a higher standard deviation of returns. The strategy has a solid parent that earns an Above Average Parent Pillar rating. This firm has had a favorable lineup success ratio and overall attractive fees.

Morningstar's style-agnostic evaluation of this fund's process seeks to understand whether the strategy has a performance objective and sensible, clearly defined, repeatable execution. JPMorgan Small Cap Value Fund earns an Above Average Process Pillar rating.

This strategy tends to hold smaller, deeper value companies compared with its average peer in the Small Value Morningstar Category. Analyzing additional factors, this strategy tilts toward low-quality stocks or the shares of companies with more financial leverage and lower profitability. These are not defensive holdings. The strategy is also historically less exposed to the factor compared with Morningstar Category peers. This strategy also has an overweight bias to the volatility factor, meaning investing in stocks that have a higher historical standard deviation of returns. This contributes to a high-risk, high-reward approach. And compared with category peers, the strategy historically has had more exposure. Additionally, the managers do not exhibit a tilt toward momentum-oriented stocks, those currently on a winning streak. The latest portfolio has about average exposure compared with others in the equity fund universe. Momentum is based on the premise that stocks that have recently outperformed will continue to, and those that have underperformed will stay behind. 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 healthcare and real estate relative to the average peer in its category by 6.4 and 5.6 percentage points in terms of assets, respectively. The sectors with low exposure compared to their category peers are consumer cyclical and industrials, underweight the average by 6.3 and 5.7 percentage points of assets, respectively. The portfolio is positioned across 431 holdings and is diversified among those holdings. In its most recent portfolio, 9.5% of the fund’s assets were concentrated in the top 10 fund holdings, as opposed to the category’s 29.2% average. And finally, in terms of portfolio turnover, this fund trades less frequently than the category’s average, potentially limiting costs to investors.

The team at JPMorgan Small Cap Value Fund has the benefit of an experienced longest-tenured manager and an experienced corps of managers, but is still relatively unexceptional, earning the strategy an Average People Pillar rating. Phillip D. Hart, the longest-tenured manager on the strategy, provides strong guidance, bringing forward 12 years of portfolio management experience. The average Morningstar Rating of the strategies they currently manage is 2.9 stars, demonstrating average risk-adjusted performance. The team boasts an experienced corps of listed portfolio managers, with four others supporting Phillip D. Hart. Together they average 10 years of portfolio management experience. As a team, they manage three investment vehicles together, with a Bronze asset-weighted average combined Morningstar Analyst and Quantitative Rating, demonstrating their potential to deliver positive alpha in aggregate.

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.

This strategy’s C share class has held up poorly, falling behind both its peers and the category benchmark. Specifically, over the past 10-year period, this share class trailed its category's average return by an annualized 94 basis points. It was also not able to outpace the category benchmark, Russell 2000 Value Index, where it trailed by an annualized 1.1 percentage points over the same period.

Even when adjusting for risk, the fund does not hold up. The share class had a lower Sharpe ratio, a measure of risk-adjusted returns, than the index over the trailing 10-year period. These subpar risk-adjusted results have not resulted in the drawback of a bumpier ride for investors. This strategy took on similar risk as the benchmark, as measured by standard deviation. 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.

Fees are one of the most predictive factors of future performance. This share class is in the costliest quintile of its Morningstar Category. Its pricey expense ratio, paired with the fund’s People, Process, and Parent Pillars, suggests that this share class could struggle to produce positive alpha relative to its category benchmark, leading to its Morningstar Quantitative Rating of Neutral.