JPMorgan Tax Aware Real Return A TXRAX Fund Analysis

JPMorgan Tax Aware Real Return A boasts strong Process and People Pillar ratings, but other weaknesses hold this strategy's Morningstar Quantitative Rating at Neutral. Fees are a weakness here. The strategy's lofty fees are a high hurdle to clear, as it is priced within the second-costliest quintile among peers.

The strategy's effective investment philosophy supports an Above Average Process Pillar rating. Independent of the rating, analysis of the strategy's portfolio shows it has maintained an overweight in AA rated bonds and debt with 10- to 15-year maturities compared with category peers. The management team's considerable industry experience earns it an Above Average People Pillar rating. The strategy has a solid parent that earns an Above Average Parent Pillar rating. This firm has had a competitive lineup success ratio and overall affordable fees.

Morningstar's evaluation of this fund's process aims to determine whether it has been applied consistently over time, as demonstrated by the portfolio's composition, its suitability for different types of investors, and expectations for performance in various market conditions, assuming the process is adhered to. JPMorgan Tax Aware Real Return Fund earns an Above Average Process Pillar rating.

Compared with other funds in the Muni National Interm 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 overweight position on AA rated bonds compared to peers. Additionally, there's been an overweight position in debt with 10- to 15-year maturities. And finally, the fund leans meaningfully toward cash.

This strategy's 12-month yield is 1.8%, lower than its average peer's 2.2%. Plus, its 30-day SEC yield (a measure similar to yield-to-maturity) sits at 2.6%. Typically, a lower yield comes with the benefit of less credit risk. Yet that's not the case here. The portfolio's average surveyed credit quality is on par with peers, with both the fund and the average being rated A.

Even with managers' lack of personal investments, the team managing JPMorgan Tax Aware Real Return Fund stands out with an experienced corps of managers. This strength bolsters the strategy's Above Average People Pillar rating. Richard D. Taormina’s veteran status, with over 25 years of portfolio management experience, brings a wealth of experience to the table. The average Morningstar Rating of the strategies they currently manage is 2.5 stars, demonstrating disappointing risk-adjusted performance. Richard D. Taormina has an experienced listed co-manager. Together, they average over 30 years of 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.

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 A share class has had varying fortunes. It has been successful over the short term but has been weak over the long term. Over the past five years, the fund outstripped the category index, the Bloomberg Barclays Municipal 1-15 Year Bond Index, by 18 basis points, and outperformed the category's average return by 1.9 percentage points. More importantly, when looking across a longer horizon, the strategy's track record was disappointing. On a 10-year basis, this share class fell behind the index by an annualized 92 basis points. Although the overall rating does not hinge on one-year performance figures, it is notable that this share class lost 6.1%, an impressive 2.2-percentage-point lead over its average peer, placing it within the top 10% of its category.

The share class had a lower Sharpe ratio, a measure of risk-adjusted returns, than the index over the trailing 10-year period. However, this strategy stayed in line with the benchmark's standard deviation.

It is imperative to evaluate fees, which compound over time and diminish returns. This share class lands in the second-costliest quintile of its Morningstar Category. Its unattractive fee, paired with the fund’s People, Process, and Parent Pillars, indicates that this share class does not offer investors a good chance to capture positive alpha versus its category benchmark, explaining its Morningstar Quantitative Rating of Neutral.