JPMorgan SMID Cap Equity Fund Class A PECAX

A talented team and thoughtful process adjustments give JPMorgan SMID Cap Equity the ability to overcome recent poor performance.

Managers Don San Jose and Dan Percella have a long and successful history with this overall strategy. The managers have applied the process used here on JPMorgan Small Cap Equity since 2008. They have managed the separate account version of this small- and mid-cap strategy since April 2016 but inherited this mutual fund offering in November 2020. Percella has gradually accrued more responsibilities in recent years as San Jose’s role as CIO of J.P. Morgan’s value equity division takes up more of his time. San Jose still has final say on the portfolio.

A solid team of analysts, who average more than 13 years with the strategy, backs the managers. The team of analysts is small, but their experience and exclusive focus on small- and mid-cap stocks make their collective workload manageable. One long-tenured analyst recently departed, but the team plans to quickly backfill the vacated spot. Collaboration with J.P. Morgan’s large and strong central group of analysts adds support.

The team looks for market leaders run by skilled management teams with consistently good profitability, competitive advantages, and high returns on invested capital. The managers will hold stocks that move up the market-cap ladder, even if valuations get stretched, so long as fundamentals remain sound. That courts price risk but maintains the portfolio’s high-quality profile. The team is working to increase idea generation and is expanding its searches at the margins to consider areas with tailwinds, such as industrials benefiting from data center buildouts, and sectors where they lack exposure relative to the benchmark.

In standardized return periods, recent underperformance overwhelms the fund’s long-term track record. From the separate account’s inception in April 2016 through March 2026, the composite’s 9.7% annualized gross-of-fees return trailed its Russell 2500 Index prospectus benchmark by 0.9 percentage points. For the trailing year through April 2026, the mutual fund’s investor share class returned 12.7% net of fees, which lagged the index by 27.39 percentage points and landed the fund in the bottom quintile of its Morningstar Category peers. The strategy has lagged its index during recent upswings, but the team’s adjustments could help moderate underperformance during rising markets.

The strategy’s quality-oriented process earns an Above Average Process Pillar rating, but recent adaptations are a watchpoint.

The process focuses on finding great businesses priced as merely good ones. The team scours the Russell 2500 Index for best-in-class companies with consistently high levels of profitability whose management teams are proven efficient capital allocators. Their emphasis on steadier business models means earnings and free cash flow growth are more important to them than top-line revenue growth.

The strategy keeps its sector exposures within 10% of its index. The team largely focuses on companies in niche industries that can leverage their competitive positioning, but it also adds names in areas with tailwinds and in sectors where the portfolio lacks marketlike exposure. The team analyzes firms’ growth potential on a three- to five-year basis, but its view on margins tends to be a key differentiator. They will happily own a company growing at a modest rate if it can expand its margins over time to produce strong earnings and cash flow that the market will ultimately reward.

The managers are disciplined yet flexible in constructing their portfolio. They build out new positions gradually as they validate their investment theses, even as they’ve accelerated idea generation. They trim holdings as they appreciate—few climb above 2% of assets—but tolerate higher valuations as long as their theses remain intact.

The team’s high-quality focus drives them toward somewhat larger stocks than its Russell 2500 Index prospectus benchmark, although its small-cap tilt makes its average market cap lower than many of its mid-blend category peers. The average market cap of its March 2026 portfolio was roughly USD 8.3 billion versus the index’s USD 7.0 billion. Roughly 65% of the portfolio is in small- and micro-cap names, which partially offsets the managers’ preference for riding their best-performing stocks higher in the market-cap range. Waste Connections and Atmos Energy, which had market caps of USD 41.3 billion and USD 30.8 billion as of March 31, 2026, are two recent examples.

The strategy’s focus on quality has been consistent even as it shifts closer to the benchmark’s shape. As of March 31, 2026, its quality metrics were higher than the index’s: return on assets (6.00% versus 1.88%), return on equity (16.16% versus 10.32%), and net margin (11.40% versus 9.60%). While the team is becoming more willing to consider industries that are somewhat lower quality but with tailwinds, such as industrials that benefit from data center buildouts, they aren’t afraid to diverge from the benchmark. The team’s preference for profitability leads to overweightings in some areas, such as industrials and financials, and underweightings in others, such as healthcare, where the team largely eschews biotechnology.

The team maintains its Above Average People rating despite the departure of a long-tenured analyst and shifting workloads among the portfolio managers.

Managers Don San Jose and Dan Percella have run this smid-cap strategy since the separate account’s April 2016 inception. San Jose is a J.P. Morgan veteran, joining the firm in 2000, while Percella joined several years later. They have worked together on sibling strategy JPMorgan Small Cap Equity since 2008. San Jose took over as the chief investment officer of J.P. Morgan’s value equity division in late 2021. Percella has gradually accrued more responsibilities here as the CIO role takes up more of San Jose’s time. But San Jose remains the lead manager and has final say over the portfolio.

The managers primarily work with a team of dedicated analysts. Each analyst covers a couple of sectors, but they remain generalists. Chris Carter, who has been on the team since 2015 and has 20 years of industry experience, is leaving in summer 2026. That will take the team down to three members from four until they backfill the position. Jon Brachle is the most senior analyst on the team, while Jesse Huang and Michael Yuan are more recent additions with about 10 years of experience each. The team also collaborates with J.P. Morgan’s core analyst group and the firm’s risk management team.

J.P. Morgan continues to build a track record of strong stewardship, supporting a Parent rating upgrade to High from Above Average.

With more than USD 4 trillion in assets under management (including USD 1.3 trillion in money market funds) and a broad reach, J.P. Morgan is among the largest active asset managers in the US, Europe, and Asia. Although some multi-asset offerings have struggled over the past five years, prompting new leadership to make changes to investment teams, its equity and fixed-income teams boast long-tenured portfolio managers who practice repeatable investment processes that have generally produced strong long-term results. Most of its funds are core building blocks with long lifetimes, though its lineup around the world also includes more-specialized options: Two options-based equity-income exchange-traded funds, launched in 2020 and 2022, are now among the firm’s largest. J.P. Morgan has been an early mover in offering active ETFs, having converted 12 of its open-end mutual funds to the structure and launching others. It isn’t always at the forefront of emerging trends. While it has filed registration statements with the Securities and Exchange Commission for an interval fund and an ETF investing in private markets, it hasn’t yet introduced such an option for all investors, whether on its own or in partnership with another asset manager, unlike some of its closest competitors.

To support the firm’s diverse investment offerings, J.P. Morgan has invested heavily in both portfolio management tools and its client organization. Over the past 10 years, the firm has developed robust proprietary technology with advanced analytics and broad buy-in from investment analysts, portfolio traders, and portfolio managers, all of whom have easy access to the platform. The firm also stands apart for its demonstrated commitment to clients. In the early 2000s, J.P. Morgan began pivoting its engagement with financial advisors to adopt a more consultative approach, supported by its sought-after Guide to the Markets research series that focuses on investor education, not product pitches. This perspective can help clients stay the course, supporting positive investor outcomes.

Incentives reinforce alignment with fundholders. Beginning more than 10 years ago, investment team compensation is tied to three-, five-, and 10-year performance, and portfolio managers must invest at least half of their deferred compensation in J.P. Morgan strategies. Many firms encourage portfolio managers to invest alongside fundholders, but J.P. Morgan goes a step further in requiring client-facing individuals to invest substantial portions of their incentive compensation in the funds.

Although some funds still face high cost hurdles, more than half of share classes charge competitive fees relative to peers.

Underperformance has recently overshadowed this strategy’s long-term track record.

This strategy had been impressive for the first half of its relatively short history, but sharp underperformance over the past few years has dented its track record. From the separate account’s inception in April 2016 through March 2026, the composite’s 9.7% annualized gross-of-fees return trailed its Russell 2500 Index prospectus benchmark by 0.9 percentage points. Risk-adjusted returns were stronger, however, as the strategy’s standard deviation (a measure of volatility) was well below its index’s.

The team’s focus on firms with durable business models can provide some downside protection, but it can hold the fund back in sharp rallies. The trailing 12 months through March 2026 are a prime example: The Russell 2500 Index gained 23.5% versus the composite’s 0.5%. That performance put the fund in the bottom decile of its mid-blend category peers. Low-quality companies, with traits like weak profitability and high leverage that the strategy typically avoids, dominated the small-cap rally. The nature of the rally, however, only partially explains why the fund fell short. Many of the strategy’s picks in industrials, financials, and healthcare dragged down returns. Despite the tough run over the last few years, this is still a strategy that can deliver over the long term.

JPMorgan SMID Cap Equity A's Prospectus Adjusted Expense Ratio is 1.09% per year. It places it in the second-most-expensive quintile of the Morningstar US Fund Mid-Cap Blend Category, where the median fee is 0.83% per year. This cost positioning translates into a Medalist Rating Price Score of -1.09, which reflects its relative price positioning within the category. The Price Score ranges from -2.50 (most expensive) to +2.50 (cheapest), with higher scores indicating better cost competitiveness.