Skip to Content

JPMorgan Europe Dynamic C VEUCX

Analyst rating as of

Morningstar’s Analysis

Analyst rating as of .

The team and wider resources are key to executing the process.

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

The team and wider resources are key to executing the process.

Summary

| |

JPMorgan Europe Dynamic benefits from a stable and effective team that implements a quantitative model looking to capture momentum. The strategy’s Morningstar Analyst Ratings range from Bronze to Neutral, depending on fees.

The quant-led model underpinning this offering has been in place since 2000. 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. The managers are part of the behavioral-finance group, where the unconstrained subteam is led by Ingram. They sit alongside the research and implementation teams, working closely with them to execute the approach. There is also scope to lean on the global analyst bank, whose bottom-up stock research provides deeper insights and fundamental analysis.

The model screens the most liquid 60% of stocks in Europe, looking for attractively valued names that are deemed high quality and supported by 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 is collectively cheaper than the market.

The team’s ability to interrogate the quant model’s output and at times override 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. Over the current management team’s tenure from March 2007, performance is ahead of the MSCI Europe Index and Europe stock Morningstar Category average to the end of August 2021. The fund underperformed four calendar years in a row up to the end of 2019, however, which was its worst consecutive run. A lack of momentum in European markets and contrarian positions not being in favor were key reasons. Since that point, there has been a return to form. Adding to technology-led momentum names after the March 2020 sell-off notably drove returns. As value came back into vogue in the latter part of 2020 and into 2021, the process pushed the managers towards value cyclical names, which was also of benefit. Stock selection has been additive over this period, and the portfolio as a whole has maintained a core profile.

Process

| |

The behavioral-finance 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. The process has structure, but the heavy reliance on just one factor leads to an Average Process Pillar rating.

People

| |

This pan-European strategy was launched in 1995, and team head Jon Ingram has been responsible for it since March 2007, alongside comanager John Baker. Blake Crawford became comanager in April 2019 following the departure of Anis Lahlou-Abid, who was a named manager since 2011. Crawford has been part of the team since 2008; he is a named manager on other strategies run by the team and therefore well-versed in the process. The trio forms part of JPMorgan's behavioral-finance team, which is responsible for implementing a broad range of quant strategies. Within that, Ingram heads a smaller group whose responsibilities include the European Dynamic range of funds, which have a higher tracking error than many of its other offerings. There is also scope to lean on the global analyst bank, whose bottom-up stock research provides deeper insights and fundamental analysis.

Ingram initially worked as a quant analyst in the currency team at JPMorgan before moving on to manage European equities in 2003, while Baker has been involved in European equities at the firm since 1994. The managers work closely together while also benefitting 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. The team’s ability to interrogate the quant model’s output and at times override some signals shows the managers are adept with their qualitative judgment, supporting an Above Average People rating.

Parent

| |

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.

Price

| |

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 costliest quintile. Such high fees stack the odds heavily against investors. 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

| |

The strategy's long-term performance record using the behavioral-finance team's model is ahead of the index and peer group average since its launch in 1995. From the current management team's start date in March 2007 through August 2021, the Institutional share class outperformed the MSCI Europe Index but just trailed the Europe stock Morningstar Category. The fund underperformed four calendar years in a row up to the end of 2019, however, which was its worst consecutive run. Despite this, it has still shown an ability to outperform more often than not across longer stretches. Returns in 2018 were 4.4% behind the index, with stock selection in the consumer space a notable headwind. As with other strategies that rely on quant models, this approach can sometimes struggle at market inflection points, particularly given its focus on momentum, thereby increasing volatility. 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 sell-off notably drove returns. As value came back into vogue in the latter part of 2020 and into 2021, the process pushed the managers towards value cyclical names, which was also of benefit. Stock selection has been additive over this period, and the portfolio as a whole has maintained a core profile. Risk-adjusted returns are also ahead of peers and the index over the current management’s tenure, meaning investors have been compensated for the slightly higher volatility displayed relative to these yardsticks.

Portfolio

| |

The portfolio is frequently turned over depending on the prevailing environment, and the managers are not afraid to make sizable bets against its MSCI Europe Index benchmark when deemed appropriate. Risk is managed on a relative basis, and they will vary the active share to manage volatility or event risk. A quality factor was added to the quant model in early 2012 with the aim of increasing resilience in down markets. The managers aim to have positive exposure to three factors--value, quality, and momentum--at all times, although the weightings 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. For example, in July 2021, around 73% of the portfolio was in large caps, versus 52% a year prior. Mid-caps stood at 21%, relative to 36% 12 months earlier. Small caps were 3% of the fund. Retail, mainly through Internet-driven names such as HelloFresh HFG, remains a key overweighting. Banks are also an overweighting. Pharmaceuticals continue to be the largest underweighting, although Roche is held as a high-conviction position, as is another mega-cap Nestlé NESN. The portfolio tends to be reasonably diversified across 60-110 positions; it currently stands near the middle of this range.