JPMorgan US Value C VGICX

JPMorgan U.S. Value’s talented leader and well-executed approach earn its two cheapest share classes a Morningstar Analyst Rating of Gold, while the rest earn Silver.

Lead manager Clare Hart has masterfully steered this strategy since March 2004. That she skillfully did so alone on a day-to-day basis for the better part of 15 years didn’t stop her from reinforcing her investment team along the way. In 2019, Hart added then-analyst Andrew Brandon and JPMorgan’s corporate governance expert David Silberman as comanagers here—and on Gold-rated sibling strategy JPMorgan Equity Income HLIEX—to help shepherd the sizable asset bases her success had garnered ($10 billion here and $83 billion on that strategy as of March 2022). In both cases, the three managers work closely with two dedicated analysts trained in Hart’s well-rounded investment process and draw upon broader firmwide analytical support.

Hart’s sound approach has proven its worth here. Similar to the equity-income fund, she and the team focus here on competitively advantaged firms with good balance sheets, steady cash flows, and capable managements trading at attractive prices. Unlike its sibling, however, stocks need not pay a dividend, and the managers have more leeway to invest in underappreciated or cyclical firms whose somewhat less-pristine fundamentals offer appealing risk/reward prospects.

That means the 85- to 110-stock portfolio tends to have modestly lower quality characteristics than JPMorgan Equity Income but still much higher than most large-value Morningstar Category rivals. As of March 2022, the portfolio kept more of its assets in companies with a wide Morningstar Economic Moat Rating than nearly four fifths of its peers. Meanwhile, it included wide-moat stocks such as Berkshire Hathaway BRK.B and Alphabet GOOG, whose lack of a dividend disqualifies them from its sibling’s portfolio.

Hart’s deft execution has achieved sparkling long-term returns that have consistently beaten the Russell 1000 Value Index during her tenure: On her watch, the strategy’s monthly rolling three-year returns through April 2022 beat the benchmark 83% of the time.

Lead manager Clare Hart’s approach to picking quality stocks at attractive prices earns an Above Average Process rating.

As at sibling strategy JPMorgan Equity Income HLIEX, Hart here scours the U.S. large-cap universe for firms with consistent earnings, high returns on invested capital, conservative financials, and strong management teams. Unlike its sibling, however, there is no dividend-yield requirement here, and the managers have more flexibility to dip into cyclicals such as Autozone AZO and pounce on beaten-up stocks such as Meta Platforms FB.

Hart won’t pay too large a premium for stocks, quality or otherwise. Valuations are critical to buy-and-sell decisions. Depending on a stock’s industry characteristics, she’ll assess a variety of its price and enterprise value multiples to evaluate its worth.

When constructing the 85- to 110-stock portfolio, Hart typically caps new entrants at 5% of assets each but doesn’t place a hard limit on older positions. She generally maintains some exposure to each of the Russell 1000 Value Index’s sectors, but relative weightings have varied up to 10 percentage points.

Hart’s patient approach has kept trading to a minimum. Annual turnover has ranged from 14% to 32% since 2017, versus about 36%-46% for the large-value category active peer median.

Lead manager Clare Hart generally invests heavily in financial-services stocks. Within that sector, she typically spreads her bets across industries. As of March 2022, for example, the portfolio held diversified banks such as Wells Fargo WFC, Bank of America BAC, and Citigroup C; capital markets firms such as Morgan Stanley MS, Charles Schwab SCHW, and Goldman Sachs GS; and insurance companies such as Chubb CB, Hartford HIG, and MetLife MET, among others. She also generally favors consumer cyclical and industrials stocks and keeps investments relatively light in the real estate, communications services, utilities, and consumer defensive sectors.

Hart’s search for competitively advantaged businesses typically shows in the portfolio’s relatively high-quality metrics. The portfolio’s average returns on invested capital tend to be higher than the Russell 1000 Value Index’s, and it generally has a hefty stake in companies with economic moats. As of March, for instance, the portfolio's 46% allocation to companies with a wide moat rating was 8 percentage points higher than the benchmark’s and more than nearly 80% of large-value category peers. But she hasn’t paid too large a premium for such stocks: The portfolio’s average valuation multiples (such as price/earnings) were mostly in line with the benchmark’s.

A skilled manager and her experienced support earn the strategy a High People rating.

Lead manager Clare Hart joined JPMorgan in 1999 and took the U.S. mutual fund’s helm in March 2004. In 2019, she added two members to the management squad: Andrew Brandon in February and David Silberman in November. Bolstering the roster made sense because Hart had previously overseen an enormous asset base alone. Brandon has worked with Hart as an analyst since 2012, while Silberman, a 30-year firm veteran, previously headed the firm’s equity investment director and corporate governance teams globally. Brandon and Silberman also became Hart’s comanagers on JPMorgan Equity Income HLIEX in November 2019. That portfolio has significant overlap with this one but also has a dividend yield requirement and slightly more-stringent quality constraints.

The managers work alongside two dedicated analysts and have broader firmwide analytical support. Tony Lee joined the team in 2018 and Lerone Vincent joined in early 2022. Vincent replaced Shilpee Raina, who left to join Bronze-rated JPMorgan U.S. Equity JMUEX as a comanager in November 2021. Both Lee and Vincent served in the firm’s core analyst group before joining this team.

Management invests alongside fundholders here (and on JPMorgan Equity Income): Hart invests more than $1 million here; Silberman invests at least $500,000; and Brandon invests at least $100,000.

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 has earned solid returns during lead manager Clare Hart’s tenure. From her start in March 2004 through April 2022, the U.S. mutual fund’s institutional shares' 8.5% annualized return beat the Russell 1000 Value Index and large-value category norm by 0.6 and 1.3 percentage points, respectively. Its excess results were remarkably consistent: Its monthly rolling three-year returns beat the benchmark more than four fifths of the time. And its superior risk-adjusted results—including its Sharpe ratio—were also impressive, given its tendency toward economically sensitive sectors.

Hart’s skillful execution has helped the fund keep pace with the benchmark during downturns. In fact, the fund’s performance has stayed within 1.2 percentage points of the index’s during 10 of 11 market downturns of 10% or more during Hart’s tenure (it did 4.7 percentage points better during an early-2009 selloff). It has tended to outperform when markets rally. For instance, it beat the benchmark from the March 23, 2020, market nadir through December 2020, gaining a cumulative 59.6% versus the index’s 57.4% rise.

The fund has been a decent performer during the trailing 12 months through April 2022. Its 2.9% return beat the index’s 1.3% gain but trailed the 3.0% category norm. Timely bets in tech giant Microsoft MSFT and drug maker Eli Lilly LLY contributed the most to its outperformance versus the benchmark.

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. However, based on our assessment of the fund’s People, Process and Parent pillars in the context of these fees, we still think this share class will be able to deliver positive alpha relative to the category benchmark index, explaining its Morningstar Analyst Rating of Silver.