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JPMorgan Europe Dynamic A VEUAX

Analyst rating as of
NAV / 1-Day Return
26.62  /  0.00
Total Assets
602.2 Mil
Adj. Expense Ratio
1.240%
Expense Ratio
1.240%
Fee Level
Low
Longest Manager Tenure
17.42 years
Category
Europe Stock
Investment Style
Large Blend
Min. Initial Investment
1,000
Status
Open
TTM Yield
2.36%
Turnover
92%
unlocked

Morningstar’s Fund Analysis VEUAX

Analyst rating as of .

Strong team and wider resource lead our conviction here.

Our analysts assign Neutral ratings to strategies they’re not confident will outperform a relevant index, or most peers, over a market cycle.

Strong team and wider resource lead our conviction here.

Associate Analyst

Summary

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JPM Europe Dynamic benefits from a stable and effective team that implements a quantitative model looking to capture momentum. It retains its Morningstar Analyst Rating of Bronze or Neutral, depending on fees.

Team head Jon Ingram has been responsible here since 2007 alongside comanager John Baker; Blake Crawford was named as an additional comanager in April 2019. Along with them, Alex Whyte and Victoria Helvert are also part of the Dynamic team headed by Ingram, which is part of the wider International Equities Group at JPMorgan Asset Management. They sit alongside the research and implementation teams, working closely with them to execute the approach. The global analyst team, whose bottom-up stock research provides deeper insights and fundamental analysis, is strong.

The quant-led model underpinning this offering has been in place since 2000. It screens the most liquid 60% of stocks in Europe, looking for attractively valued names that have high quality and positive momentum. Daily meetings are then held by the team to cover company updates, published earnings changes, changes to estimates, and other relevant news flow around which analysts may carry out further research. The best stock ideas that display positive quality and momentum factors, while also deemed attractively valued relative to the market and peers, are combined to build a core portfolio that’s collectively cheaper than the market. The team’s ability to interrogate the quant model’s output and at times over-ride some signals, shows the managers are adept with their qualitative judgment. New positions are initiated on the premise that a stock is displaying positive earnings momentum. This leads to a high portfolio turnover of around 150% per year. Internal risk systems are dynamic, helping to provide a look-through on positioning, style, and active share.

Overall, the strategy is expected to deliver positive outcomes in stable market environments, where earnings and momentum are driving returns. However, like most quant approaches, inflection points and rapidly changing market conditions may prove challenging.

Process

| Average |

This approach is well structured, but its heavy reliance on one factor leads to an Average Process Pillar rating.

The quant model employed here was built on the premise that cheap, fast-growing stocks with positive news flow outperform over time. It also aims to capitalize on key behavioral biases that can influence prospective returns, such as anchoring and herding behavior affecting analysts’ earnings estimates for a company. The model is applied to the European universe of stocks to screen on three characteristics; value, quality, and momentum (both price and earnings).

The team meets daily to cover company updates, published earnings changes, changes to estimates, and other relevant news flow. Analysts may instigate follow-up research to assess the nature of earnings upgrades, and qualitative data validation is key to ensuring the model's recommendations have sound foundations. The stocks are reassessed, and those with the highest conviction make it into the portfolio. Individual weightings depend on relative risk/reward and liquidity, while internal risk systems also help monitor style and factor exposures. Although the team looks at stocks holistically, earnings momentum has consistently proved the primary driver of returns, with less value added from the fundamental element.

People

| Above Average |

The team’s ability to interrogate the quant model’s output and at times over-ride some signals show the managers skill, supporting an Above Average People rating.

Team head Jon Ingram has been responsible for this strategy since March 2007, alongside comanager John Baker. Blake Crawford became comanager in April 2019 following the departure of Anis Lahlou-Abid, who was a manager since 2011. Crawford has been part of the team since 2008 and is a named manager on other strategies run by the team and therefore well-versed in the process. Alex Whyte and Victoria Helvert are also part of the Dynamic team, which is part of the broader International Equity Group within JPM Asset Management. The managers can also leverage the firm’s global analyst team, which providers deeper insights and fundamental analysis.

Ingram joined as a quant analyst in the currency team at JPMorgan before moving on to manage European equities in 2003, and Baker has been involved in European equities at the firm since 1994. The managers work closely together while also benefiting from the wider team resource. Demos Philippou, appointed in 2016, sits with this team and is responsible for implementing trades and monitoring cash flows, freeing up more time for the analysts/managers to focus on stock analysis and portfolio construction. The three comanagers have equal voting rights on decisions, but Ingram is the lead and ultimately responsible for performance.

Parent

| Above Average |

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.

Price

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It’s critical to evaluate expenses, as they come directly out of returns. The share class on this report levies a fee that ranks in its Morningstar category’s second-costliest quintile. That’s poor, and based on our assessment of the fund’s People, Process and Parent pillars in the context of these fees, we don’t think this share class will be able to deliver positive alpha relative to the category benchmark index, explaining its Morningstar Analyst Rating of Neutral.

Performance

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The strategy's long-term performance record under Jon Ingram is ahead of both the MSCI Europe index and average Europe stock category peer. It also produced better risk-adjusted returns, as measured by the fund’s Sortino and Sharpe ratios, despite the higher-volatility approach.

The fund underperformed four calendar years in a row up to end of 2019, which was its worst consecutive run. Returns in 2018 were 3.8 percentage points behind the MSCI Europe Index with stock selection in the consumer space a notable headwind. Like other quant-driven strategies, this approach can struggle at market inflection points, particularly given its focus on momentum. This was the case in the fourth quarter of 2018 and the start of 2019 when there were rapid and sharp market rotations. There has, however, been a more recent return to form. Adding to technology-led momentum names after the March 2020 selloff notably drove returns. As value came back into vogue in the latter part of 2020 and into 2021, the process pushed the managers toward value cyclical names, which was also of benefit.

In 2021, the fund outperformed its benchmark and typical peer by 1.4 and 1.2 percentage points, respectively. Stock selection in the tech sector was the largest contributor. However, for the year to date through August 2022, the strategy was in line with its average category rival but trailed its benchmark index by 1.1 percentage points.

Portfolio

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The portfolio is diversified across 60-110 positions, currently at the lower end of this range. Risk is managed on a relative basis, and they will vary active share to manage volatility or event risk. A quality factor was added to the quant model in early 2012 to increase resilience in down markets. The managers aim to have positive exposure to three factors—value, quality, and momentum—although the weights are a product of the team's bottom-up stock selection. They can seek opportunities down the market-cap scale, too, with exposure changing based on the model’s output.

The strategy tends to have high turnover, and the managers are not afraid to make sizable bets against its MSCI Europe Index benchmark. Following the strong value rally that started in 2021, most companies that demonstrate such characteristics have recently been in the value space. As a result, at the end of August 2022, the portfolio shifted slightly toward value and borders the large-blend and large-value sections of the Morningstar Style Box.

The portfolio also exhibits lower multiples in terms of price/earnings and price/book ratios relative to the MSCI Europe Index and the Europe stock Morningstar Category. Although exposure to financials was trimmed in 2021, it remains the largest overweighting against the index with 20.2% of the overall assets compared to 16.1%, respectively. Energy is the second-largest overweighting; the strategy’s largest underweighting is industrials.