JPMorgan Tax Free Bond R6 RUNFX

The portfolio maintains a sizable cost advantage over competitors, priced within the 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 strategy's parent organization earns the firm an Above Average Parent Pillar rating, and this rating is inherited from vehicles belonging to the same branding entity and is indirectly assigned by an analyst.

JPMorgan Tax Free Bond Fund earns an Above Average Process Pillar rating.

The leading factor in the rating is the parent firm's five-year risk-adjusted success ratio of 57%. 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 impressive risk-adjusted performance, as shown by its average 10-year Morningstar Rating of 3.3 stars, also influences the rating.

Compared with other funds in the Muni National Long Morningstar Category, this fund has been consistently sensitive to interest-rate changes over the past few years. Opening the analysis to additional factors, the portfolio has displayed biases over time, whether towards or away from certain fixed-income instruments. Compared with the average strategy in the category, the managers have been underweight A rated bonds in recent years. In the latest month, the strategy has also relatively underweighted A rated bonds compared with Morningstar Category peers. Additionally, the managers have exhibited a notable sector bias towards cash over the past few years. Compared with category peers, the strategy had more exposure to cash in the most recent month. Finally, during the past few years, the fund leaned meaningfully towards debt with 15- to 20-year maturities. In this month, the strategy also leaned more towards debt with 15- to 20-year maturities compared with its peers.

This strategy has a 3.7% 12-month yield, higher than its average peer's 3.3%. It also has a 3.6% 30-day SEC yield (a measure similar to yield-to-maturity). Typically, higher yields come at the cost of higher credit risk. But that isn't always the case. Over the past 12 months, the average yield of the fund has been higher than the average yield of its Morningstar Category peers. The portfolio's average surveyed credit quality is on par with peers, with both the fund and the average being rated A.

The most significant contributor to the rating is its parent firm's five-year success ratio of 57%. The measure indicates the percentage of a firm's funds that survived and outperformed their respective category's median return for the period. The stability of talent across its parent firm also influences the rating. The firm's asset-weighted manager tenure of 19 years demonstrates its ability to retain portfolio managers. Lastly, the rating is limited by the turnover of its management team. The fund last saw a manager change zero month ago, which suggests that it could do more to retain its portfolio managers.

The team is backed by Michelle V. Hallam, the longest-tenured manager on the strategy, who brings 20 years of listed portfolio management experience. The strategies they currently manage have an average Morningstar Rating of 2.6 stars, demonstrating disappointing risk-adjusted performance compared with category peers. Although the team is small, it is a solid supporting cast. Together, the three listed managers boast more than an average of 14 years of listed portfolio management experience. None of the managers here invest any money in the strategy, which is disappointing, as such investments help align managers' interests with fundholders.

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.

Over the past three years, it trailed the category index, the Bloomberg Barclays Municipal Bond Index, by an annualized 1.1 percentage points, and underperformed its average peer by 54 basis points. And more importantly, when looking across a longer horizon, the strategy's performance looks bleak. On a five-year basis, it lagged the index by an annualized 50 basis points.

Even when adjusting for risk, the fund is not favorable. The share class trailed the index with a lower Sharpe ratio, a measure of risk-adjusted returns, over the trailing five-year period. The strategy also took on elevated risk, contributing to the bad outcome for investors. Specifically, the fund had a higher standard deviation, 8.4%, compared with the benchmark, 6.5%. Finally, the share class proved itself ineffective as it was unable to generate alpha, over the same period, against the category group index: a benchmark that encapsulates the performance of the broader asset class.

This share class is in the cheapest quintile of its Morningstar Category. Its low expense ratio, in conjunction with the fund’s People, Process, and Parent Pillars, indicates that this share class has high potential to deliver positive alpha compared with its category benchmark, explaining its Morningstar Medalist Rating of Bronze.