JPMorgan Tax Free Bond I PRBIX

A strong management team and sound investment process underpin JPMorgan Tax Free Bond I's Morningstar Quantitative Rating of Bronze. The portfolio maintains a cost advantage over competitors, priced within the second-lowest fee quintile among peers.

The longest-tenured portfolio manager's extensive experience drives the strategy's Above Average People Pillar rating. The strategy's investment approach stands out and earns an Above Average Process Pillar rating. The portfolio has underweighted A rated bonds and has an overweight in cash compared with category peers. The strategy belongs to a strong asset-management firm that earns an Above Average Parent Pillar rating. The firm, for example, has had a favorable lineup success ratio and overall low fees.

Morningstar's style-agnostic investment process evaluation looks for strategies with a philosophy distinctive enough to generate standout results in the future. JPMorgan Tax Free Bond Fund earns an Above Average Process Pillar rating.

Compared with other funds in the Muni National Long Morningstar Category, this fund, historically, hews closely to peers' credit and interest-rate sensitivity. Opening the analysis to additional factors, the portfolio, over time, has displayed three biases whether toward or away from certain fixed-income instruments. First, managers have shown a consistent underweight position on A rated bonds compared to peers. Additionally, the fund has exhibited a notable sector bias toward cash. And finally, the fund leans away from debt with 20- to 30-year maturities.

This strategy rises above the mark with a 3.2% 12-month yield, compared with its category's average 2.8% yield. It also has a 3.9% 30-day SEC yield (a measure similar to yield-to-maturity). Typically, higher yields come at the cost of higher credit risk. The portfolio favors lower-quality credit with an average of BBB, compared with the typical peer's A and its non-investment grade stake is 4% of assets, compared to its peers' 1%. Strategies that take on more credit risk tend to be at their best when markets are as well. This risk contributes to strong performance during bull markets at the cost of losing more on the downside.

JPMorgan Tax Free Bond Fund's longest-tenured manager and seasoned portfolio managers drives the strategy's Above Average People Pillar rating. Richard D. Taormina, the longest-tenured manager on the strategy, boasts over 25 years of portfolio management experience. The average Morningstar Rating of the strategies they currently manage is 2.5 stars, demonstrating discouraging risk-adjusted performance. Despite having a small team, the two listed managers boast 22 years of portfolio management experience.

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 Institutional share class' long-term performance is mixed depending on its comparison point. It has provided similar returns compared with peers, but subpar returns compared with the category benchmark. This share class mirrored the category average's 1.5% return over the eight-year period and its 1.8% return over a 10-year period. Despite the mixed performance against peers, it did not extend when compared with the category index, Bloomberg Barclays Municipal Bond Index, where it trailed by an annualized 30 basis points over the same 10-year period.

When risk is properly accounted for, the strategy is not any more compelling. The share class had a lower Sharpe ratio, a measure of risk-adjusted returns, than the index 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 important for investors to be alert for fees, as they are essentially negative alpha. This share class lands in the second-cheapest quintile of its Morningstar Category. Its competitive fee, taken together with the fund’s People, Process, and Parent Pillars, results in a judgment that this share class is well-positioned to generate positive alpha relative to its category benchmark, explaining its Morningstar Quantitative Rating of Bronze.