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Undiscovered Managers Behavioral Val A UBVAX

Quantitative rating as of
NAV / 1-Day Return
81.02  /  0.68 %
Total Assets
7.5 Bil
Adj. Expense Ratio
1.270%
Expense Ratio
1.240%
Distribution Fee Level
Average
Share Class Type
Front Load
Category
Small Value
Investment Style
Small Value
Min. Initial Investment
1,000
Status
Open
TTM Yield
0.63%
Turnover
37%
unlocked

Morningstar’s Analysis UBVAX

Quantitative rating as of .

The Morningstar Quantitative Rating for funds is analogous to the rating our analyst might assign to the fund if they covered it.

Our analysts assign Silver ratings to strategies that they have high conviction will outperform a relevant index, or most peers, over a market cycle.

Summary

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A strong management team and sound investment process underpin Undiscovered Managers Behavioral Val A's Morningstar Quantitative Rating of Silver. 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 longest-tenured portfolio manager's extensive experience drives the strategy's High People Pillar rating. The strategy's sensible investment philosophy earns an Above Average Process Pillar rating. The portfolio has been significantly underweight quality exposure and has an overweight in yield exposure compared with category peers. Low quality exposure is attributed to stocks with higher financial leverage and lower profitability. And a high yield exposure is rooted in holding high dividend-paying or buyback stocks. 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 reasonable fees.

Process

| Above Average |

Morningstar's style-agnostic evaluation of this fund's process seeks to understand whether the strategy has a performance objective and sensible, clearly defined, repeatable execution. Undiscovered Managers Behavioral Val Fd earns an Above Average Process Pillar rating.

This strategy targets deeper value plays than its peers’ average in the Small Value Morningstar Category. But in terms of market-capitalization, this strategy is on par with peers. Analyzing additional factors, this strategy favors low-quality stocks. Such positions do not tend to provide much ballast for a portfolio. The strategy is also historically less exposed to the factor compared with Morningstar Category peers. The managers have also tended to overweight yield, shown by the portfolio's high exposure to dividends or buybacks. Higher-yielding stocks can increase income, but some dividend-payers also might cut their payouts when earnings fall. And compared with category peers, the strategy historically has had more exposure. Additionally, this strategy has demonstrated a bias to high-momentum stocks. Momentum is based on the premise that market outperformers will continue to outperform, and the laggards will continue to lag. This means that managers are overweighting stocks currently on a winning streak. However, the portfolio has less exposure than its Morningstar Category 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 financial services and consumer cyclical relative to the average peer in its category by 6.8 and 5.5 percentage points in terms of assets, respectively. The sectors with low exposure compared to their category peers are technology and industrials, underweight the average by 5.2 and 4.7 percentage points of assets, respectively. The strategy owns 94 securities and is similarly concentrated in the top 10 holdings as the category average, 28.7% of assets. And finally, in terms of portfolio turnover, this fund trades less regularly than the typical peer in its category, which may result in a lower cost to investors.

People

| High |

Undiscovered Managers Behavioral Val Fd benefits from an experienced longest-tenured manager, despite standard portfolio manager turnover. The former bolsters the strategy's High People Pillar rating. David M. Potter, the longest-tenured manager on the strategy, provides strong guidance, bringing forward 18 years of portfolio management experience. The average Morningstar Rating of the strategies they currently manage is 3.9 stars, demonstrating they can provide value for investors on a risk-adjusted basis. Despite having a small team, the two listed managers boast 11 years of portfolio management experience. As a team, they manage two investment vehicles together, with a Gold asset-weighted average combined Morningstar Analyst and Quantitative Rating, demonstrating their potential to deliver positive alpha in aggregate. The fund has had about average portfolio manager turnover compared to other teams. Long-term stability strengthens a team's rating as it tends to support positive results. However, the most recent documented departure was 23 months ago.

Parent

| Above Average |

J.P. Morgan Asset Management’s strong investment culture, which shows through its long-tenured, well-aligned portfolio managers and deep analytical resources, supports a renewed Above Average Parent rating.

Across asset classes and regions, the firm's diverse lineup features many Morningstar Medalists, such as its highly regarded U.S. equity income strategy that’s available globally. There's been some turnover in the multi-asset team recently, but it remains deeply resourced and experienced. Manager retention and tenure rates, and degree of alignment for U.S. mutual funds compare favorably among the competition. Managers' compensation emphasizes fund ownership over stock ownership, which is distinctive for a public company.

The firm continues to streamline its lineup and integrate its resources further. For instance, in late 2019, the multi-asset solutions division combined with the passive capabilities. The firm hasn’t launched trendy offerings as it’s mostly expanded its passive business lately, but acquisition-related redundancies and more hazardous launches in the past weigh on its success ratio, which measures the percentage of funds that have both survived and outperformed peers. Fees are regularly reviewed downward globally; they're relatively cheaper in the U.S. than abroad. Also, the firm is building its ESG capabilities and supports distinctive initiatives on diversity.

Performance

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This strategy’s A share class has lapped both its peers and the category benchmark. Over a 10-year period, this share class outperformed the category’s average return by 2.7 percentage points annualized. And it was also ahead of the category index’s, Russell 2000 Value Index's, gain by 2.5 percentage points over the same period. Although the overall rating does not hinge on one-year performance figures, it is notable that this share class returned 1.4%, an impressive 8.9-percentage-point lead over its average peer, placing it within the top 10% of its category.

The risk-adjusted performance only continues to make a case for this fund. The share class led the index with a higher Sharpe ratio, a measure of risk-adjusted return, over the trailing 10-year period. Notably, these strong risk-adjusted results have not come with a rockier ride for investors. This strategy took on similar risk as the benchmark, as measured by standard deviation. However, 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.

Price

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Low-cost investments routinely outperform high-cost investments. Thus, assessing cost is a critical step in any investment evaluation. This share class charges a fee that places it in its Morningstar Category's second-costliest quintile. Despite this fee, the fund’s People, Process, and Parent Pillars suggest this share class has the potential to deliver positive alpha relative to its category benchmark, garnering a Morningstar Quantitative Rating of Silver.