JPMorgan US Momentum Factor ETF JMOM

The portfolio maintains a cost advantage over competitors, priced within the least expensive fee quintile among peers.

The strategy's effective investment philosophy supports an Above Average Process Pillar rating. Independent of the rating, analysis of the strategy's portfolio shows it has maintained a significant underweight position in quality exposure and an overweight in liquidity exposure compared with category peers. Low quality exposure is attributed to stocks with higher financial leverage and lower profitability. And a high liquidity exposure is rooted in stocks with higher trading volumes, lending managers more flexibility. The strategy’s management team earns an Average People Pillar rating. The strategy's parent organization earns the firm an Above Average Parent Pillar rating. People Pillar and Parent Pillar ratings for this strategy are indirectly assigned by a Morningstar analyst rather than algorithmically derived. Please see the notes following each pillar section for more details. The details of assigning methods can be found in each pillar section.

JPMorgan US Momentum Factor ETF earns an Above Average Process Pillar rating.

The main driver of the rating is that this fund tracks an index. Historical data, such as Morningstar's Active/Passive Barometer, finds that passively managed funds have generally outperformed their active counterparts, especially over longer time horizons. The parent firm's excellent risk-adjusted performance, as shown by its average 10-year Morningstar Rating of 3.3 stars, also influences the rating. Lastly, the process is limited by the fund's weak long-term risk-adjusted performance. This can be seen in its five-year alpha calculated relative to the category index, which suggests that the process has struggled over that period.

This strategy tends to hold smaller, deeper value companies compared with its average peer in the Large Growth Morningstar Category. Looking at additional factor exposure, this strategy has consistently favored low-quality stocks compared with Morningstar Category peers over the past few years. Such positions do not tend to provide much ballast for a portfolio. In the latest month, the strategy was also less exposed to the Quality factor compared with Morningstar Category peers. This strategy has also been exposed to liquid stocks during these years. This gives the managers more flexibility during bear markets to sell without adversely affecting prices. Compared with category peers, the strategy also had more exposure to the Liquidity factor in the most recent month. In addition, this strategy has taken on exposure to high-momentum stocks in these years. Momentum is based on the premise that market outperformers will continue to outperform, and laggards will continue to lag. This means that managers are overweighting stocks currently on a winning streak. In this month, the strategy also had more exposure to the Momentum factor over its 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 industrials and energy relative to the category average by 7.2 and 3.4 percentage points, respectively. The sectors with low exposure compared to category peers are technology and communication services, underweight the average by 10.6 and 5.0 percentage points of assets, respectively. The strategy owns 278 securities and is diversified among those holdings. In its most recent portfolio, 19.4% of the fund’s assets were concentrated in the top 10 fund holdings, as opposed to the category’s 56.1% average. And finally, in terms of portfolio turnover, this fund trades less frequently than the category’s average, potentially limiting costs to investors.

There are four managers listed on the fund: Yegang(Steven) Wu, Yazann Romahi, Natalia Zvereva, Joe Staines. Together, they manage a total of six strategies, with a Gold asset-weighted algorithmically-assigned average Morningstar Medalist Rating, indicating the potential to deliver positive alpha relative to the category median in aggregate. The team has faced turnover as of late, with Aijaz Hussain leaving within the last about a month ago. Even though it is a passive fund, high turnover can still hinder the effectiveness of the investment process.

Note: This People Pillar rating is indirectly assigned by an analyst. Morningstar analysts evaluate the People Pillar for passive products at the brand level and may also differentiate by asset class. There is at least one other passive strategy at the firm that is covered by a Morningstar analyst, so the People Pillar rating of the fund is inherited from the rating that the Morningstar analyst assigned to investment vehicles under the same brand name.

As of 2022, this investment stalwart manages more than USD 2.5 trillion in AUM. Composed of various global cohorts and diverse 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.

Over the past three years, it trailed the category index, the Russell 1000 Growth Index, by an annualized 93 basis points, but outperformed the category average by 3.6 percentage points. And more importantly, when looking across a longer horizon, the strategy's performance looks bleak. On a five-year basis, it trailed the index by an annualized 3.3 percentage points.

Even when adjusting for risk, the fund is not favorable. The share class failed to beat the index with a lower Sharpe ratio, a measure of risk-adjusted returns, over the trailing five-year period. Despite this poor risk-adjusted performance, the strategy took less risk than the benchmark, as measured by a lower standard deviation of 19.3%, compared with the benchmark’s 20.8%. However, the share class proved itself effective by generating positive alpha, over the same period, against the category group index: a benchmark that encapsulates the performance of the broader asset class.

Thus, assessing cost is a critical step in any investment evaluation. This share class is within the cheapest quintile of its Morningstar Category. Its competitive expense ratio, in conjunction with the fund’s People, Process, and Parent Pillars, indicates that this share class has high potential to deliver positive alpha against its category benchmark, leading to its Morningstar Medalist Rating of Silver.