Undiscovered Managers Behavioral Val C UBVCX

A strong management team and sound investment process underpin Undiscovered Managers Behavioral Val C'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 most expensive quintile among peers.

The longest-tenured portfolio manager's extensive experience drives the strategy's High People Pillar rating. The strategy's investment approach stands out and 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 has a solid parent that earns an Above Average Parent Pillar rating. This firm has had a favorable lineup success ratio and overall affordable fees.

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 prefers more value-oriented stocks compared with the average fund in its peer group, the Small Value Morningstar Category. But in terms of size exposure, this strategy does not have much of a bias and resembles the typical portfolio. Analyzing additional factors, this strategy tilts toward low-quality stocks or the shares of companies with more financial leverage and lower profitability. These are not defensive holdings. 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 5.2 and 4.4 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 6.2 and 3.4 percentage points of assets, respectively. The portfolio is positioned across 93 holdings and assets are more dispersed than peers in the category. In particular, 27.1% of the strategy's assets are concentrated in the top 10 fund holdings, compared to the category’s 29.5% average. And in closing, 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.

Undiscovered Managers Behavioral Val Fd benefits from an experienced longest-tenured manager, despite standard portfolio manager retention. The former bolsters the strategy's High People Pillar rating. David M. Potter, the longest-tenured manager on the strategy, provides strong guidance, offering 18 years of portfolio management experience. The average Morningstar Rating of the strategies they currently manage is 3.9 stars, demonstrating encouraging risk-adjusted performance. David M. Potter has an experienced listed co-manager. Together, they average 11 years of portfolio management experience. As a team, they manage two investment vehicles together, with solid long-term prospects. The strategies average a Gold asset-weighted combined Morningstar Analyst and Quantitative Rating, indicating a position 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. The most recent documented departure was within the past two years.

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 C share class has lapped both its peers and the category benchmark. Over a 10-year period, this share class outpaced the category's average return by 2.0 percentage points annualized. And it also exceeded the category benchmark's, Russell 2000 Value Index's, gain by an annualized 2.0 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 lost 2.0%, an impressive 8.4-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. Often, higher returns are associated with more risk. However, this strategy hewed close to the benchmark's 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.

Because fees compound over time and reduce returns, it is critical for investors to minimize expenses. This share class charges a fee that places it in its Morningstar Category's most expensive quintile. Even with this fee, the fund’s People, Process, and Parent Pillars indicate this share class can produce positive alpha relative to its category benchmark, earning it a Morningstar Quantitative Rating of Silver.