JPMorgan Large Cap Growth I SEEGX

JPMorgan Large Cap Growth owned SVB Financial Group SIVB prior to its collapse. The team liked the firm’s Silicon Valley footprint and used it to get exposure to innovation and technology through financials. The strategy’s modest 0.8% weight in that stock as of January 2023, its only investment in the regional bank industry, mitigated the damage. The strategy maintains its Morningstar Analyst Ratings of Bronze to Neutral, depending on fees.

JPMorgan Large Cap Growth's experienced team is well versed in this streaky, momentum-driven approach. It earns a Morningstar Analyst Rating of Bronze for most share classes and Neutral for pricier ones.

Lead manager Giri Devulapally’s long track record and ample experience give this team a strong foundation. Prior to being named manager here in August 2004, Devulapally spent seven years as a technology and communications analyst at T. Rowe Price, a solid fit for this tech-heavy strategy. A seasoned group of four sector-focused comanagers and a newly hired analyst provide Devulapally with solid support to execute this strategy. The four comanagers—Larry Lee, Holly Fleiss, Joseph Wilson, and Robert Maloney—average 11 years at JPMorgan and provide deep industry expertise. Although personnel turnover is rare, the team suffered a loss in 2022 when consumer analyst Sarah Lassar left for JPMorgan’s emerging-markets team. The team hired Janet King, an experienced consumer analyst from Lazard Asset Management, to take her place.

Devulapally’s approach combines typical fundamental research with a momentum overlay, but it is difficult to discern a lasting edge. The team seeks companies with competitive advantages, margin expansion opportunities, and positive price momentum. While reasonable, these factors are commonplace among many large-growth strategies. Furthermore, while trading around price momentum paid off in recent years (particularly in 2020 and 2022), its reactive nature can stumble in choppier markets and can be difficult to consistently get right. While the bulk of fund assets typically sits in established growers, the team also seeks stocks with tremendous upside potential to drive performance. For a momentum-based strategy, turnover is surprisingly modest and typically sits around 50% annually. Name turnover is even lower, which is a positive as it indicates that Devulapally is not frivolously trading around fleeting momentum signals. Still, he will trim or eliminate positions that experience negative price momentum, even if his fundamental thesis remains intact.

Performance under Devulapally’s lead has been strong. The A shares’ 11.3% annualized gain from August 2004 through January 2023 edged out the Russell 1000 Growth Index’s 10.8% and comfortably beat the typical large-growth Morningstar Category peer’s 8.8%.

It warrants an Average Process rating.

Lead manager Giri Devulapally and his team aim to invest in big winners while avoiding firms at risk of notable underperformance. Like many other managers, they want to own competitively positioned companies with long-term growth and margin expansion opportunities. However, momentum plays an explicitly large role here, and Devulapally often shifts sector allocations and the underlying characteristics of the portfolio based on which corners of the market are experiencing the most positive price changes. Devulapally sees positive price momentum as a signal that the market has recognized a stock’s potential, pointing to further upside. Notably, he will also reduce or eliminate a stock if price momentum weakens, even if he and the team still believe in the fundamental thesis, a curious move that implies at times he values the market’s opinion over his own.

Devulapally believes the biggest winners are often expensive. Even so, he closely monitors each stock’s relative price tag and will trim it if its valuation looks stretched relative to its own history. He also has an appetite for riskier stocks with large upsides in markets undergoing significant change. Devulapally sizes these positions modestly, though, and he will bolster the position if the stock goes up or cut losses upon a decline.

Lead manager Giri Devulapally builds a portfolio that often looks different from the Russell 1000 Growth Index. The team’s emphasis on positive price momentum can create large swings in sector allocations and the strategy’s underlying characteristics, such as price/earnings. For example, the strategy’s nearly 10-percentage-point overweighting to technology during 2018 worked its way down to a 13-percentage-point underweighting as of December 2022, a move driven by the collapse of price momentum and frothy valuations in the sector during and following 2020’s market rally.

This strategy’s valuation metrics relative to its Russell 1000 Growth benchmark can fluctuate, too. For much of Devulapally’s 18-year tenure, the portfolio exhibited high price multiples relative to the index as high-growth stocks led the market higher with strong price momentum and secular tailwinds. Since early 2021, however, the portfolio has looked more defensive. While this shift might look out of sorts, it aligns with the team’s momentum-conscious philosophy. As many high-growth stocks began to roll over in 2021, the team rotated out of sectors like technology and into lower-multiple sectors such as healthcare and energy, which experienced higher positive price momentum during the period. As of December 2022, the portfolio’s 18.6 price/earnings ratio and 1.9 price/sales ratio sat well below both the index’s 23.2 and 3.0, respectively.

Devulapally and a long-tenured group of comanagers give this strategy a solid foundation. He joined JPMorgan in 2003 after spending six years as technology and communications analyst at T. Rowe Price, a relevant background for this tech-heavy strategy. He became comanager of this strategy in August 2004 and lead manager in August 2005. This portfolio gets his full attention, as it is the only strategy he manages.

A strong team of comanagers surround him and add to this strategy’s appeal. Devulapally partners with each of his four sector managers to construct the portfolio but has the final say in every decision. Larry Lee, Joseph Wilson, Holly Fleiss, and Robert Maloney were promoted to comanagers between 2020 and 2022 as a recognition of their tenures and contributions to the team. Each is well versed in JPMorgan’s investment philosophy, having spent between eight and 17 years on the team, and each brings extensive backgrounds in their respective sectors. While personnel departures are rare, the team lost standout consumer analyst Sarah Lassar to JPMorgan’s emerging-markets team in 2022. In response, the team hired a capable replacement in Janet King; her experience covering consumer stocks spans 20 years.

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.

From August 2004 through January 2023. the A shares’ 11.3% annualized return outpaced both the Russell 1000 Growth Index’s 10.8% and typical large-growth category peer’s 8.8%. Performance was consistent, too. In rolling five-year periods under Devulapally, the strategy outperformed the index and average category rival a notable 69% and 89% of the time, respectively.

A stellar recent run contributed to this strategy’s long-term outperformance. The team managed to beat the index during both the 2020 market rally as well as the 2022 bear market, a feat only 3% of large-growth peers have managed to pull off. The team’s focus on price momentum paid off as aptly timed moves from sectors such as technology and consumer cyclicals to healthcare and energy helped drive performance. New positions in healthcare giants such as Eli Lilly LLY and AbbVie ABBV helped buoy performance during 2022’s market downturn.

Still, investors should expect a choppy ride at times Since 2010, the strategy ranked in the top or bottom quartile of large-growth peers in nine of 13 calendar years. Over Devulapally’s tenure as lead manager, the strategy’s returns had a standard deviation of 17.0 versus its benchmark’s 16.1. The strategy’s explicit momentum bet increases performance uncertainty as the portfolio follows the market’s tides.

Based on our assessment of the fund’s People, Process, and Parent pillars in the context of these expenses, we think this share class will be able to deliver positive alpha relative to the category benchmark index, explaining its Morningstar Analyst Rating of Bronze.