JPMorgan Small Cap Value I PSOPX

The portfolio maintains a sizable cost advantage over competitors, priced within the second-lowest fee 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 important driver of the rating is its parent firm's excellent long-term risk-adjusted performance, as shown by the firm's average 10-year Morningstar Rating of 3.3 stars. The parent firm's five-year risk-adjusted success ratio of 55% also influences the rating. 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. Their commendable success ratio suggests that the firm does well for investors and that this fund may benefit from that. The size of the portfolio management team supports the process as well. With four portfolio managers at the helm, the fund is reasonably well-resourced.

This strategy hews closely to the market cap and investment style of its Small Value category peers. Analyzing additional factors, the managers have continually shown a willingness to take risks over the last few years, demonstrated by the portfolio's high volatility exposure. This contributes to a higher-risk, higher-reward approach. 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. Given the high trading volume of holdings, this fund also tilts toward liquid assets. This gives the managers more flexibility during bear markets to sell without adversely affecting prices. In this month, the strategy also had more exposure to the Liquidity 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 5.7 and 3.8 percentage points, respectively. The sectors with low exposure compared to category peers are industrials and consumer cyclical, underweight the average by 5.1 and 3.0 percentage points of assets, respectively. The portfolio is positioned across 381 holdings and its assets are more dispersed than the typical peer in the category. In the most recent disclosure, 8.4% of the fund’s assets were concentrated in the top 10 fund holdings, as opposed to the category average's 29.9%. 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, boasts 14 years of listed portfolio management experience. Phillip D. Hart is supported by an experienced team, being able to draw on three additional listed managers, who average 10 years of listed portfolio management experience. As a team, they manage six investment vehicles together, with a Bronze asset-weighted algorithmically-assigned average Morningstar Medalist Rating, demonstrating their potential to deliver positive alpha in aggregate. The highest personal investment in the fund by any of its managers is between$ 100,000 and$ 500,000. That's on the low side--it would need to be more than$ 1 million for us to see the investment as sufficient to promote the strong alignment of their interests with the strategy'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.

It has been successful over the short term but disappointing over the long term. Over the past five years, the fund outpaced the category index, the Russell 2000 Value Index, by 1.4 percentage points, and trailed the category average by 94 basis points. More importantly, on a 10-year basis, this share class underperformed the index by an annualized 17 basis points.

The share class had a lower Sharpe ratio, a measure of risk-adjusted returns, than the index over the trailing 10-year period. But notably, these subpar risk-adjusted results have not come with more volatility than the benchmark, as measured by standard deviation.

This share class lands in the second-cheapest quintile of its Morningstar Category. Its attractive expense ratio, in conjunction with the fund’s People, Process, and Parent Pillars, indicates that this share class has the ability to deliver positive alpha relative to its category benchmark, leading to its Morningstar Medalist Rating of Silver.