JPMorgan Climate Change Solutions ETF TEMP

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

The strategy’s management team earns an Above Average People Pillar rating. The strategy's sensible investment philosophy earns an Above Average Process Pillar rating. High liquidity exposure is attributed to stocks with a high trading volume, lending managers more flexibility. And a low quality exposure is rooted in stocks with higher financial leverage and lower profitability. 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 Climate Change Solutions ETF earns an Above Average Process Pillar rating.

The largest contributor to the rating is the parent firm's five-year risk-adjusted success ratio of 57%. The measure indicates the percentage of a firm's funds that survived and beat their respective category's median Morningstar Risk-Adjusted Return for the period. The parent firm's impressive risk-adjusted performance, as shown by its average 10-year Morningstar Rating of 3.3 stars, also strengthens the process. Lastly, the process is limited by being an actively managed strategy. Historical data, such as Morningstar's Active/Passive Barometer, finds that actively managed funds have generally underperformed their passive counterparts, especially over longer time horizons.

This strategy skews toward smaller, more undervalued companies compared with its average peer in the Global Large-Stock Growth Morningstar Category. Analyzing additional factors, this fund has constantly tilted toward stocks with higher trading volumes than its Morningstar Category Peers over the past few years. Such stocks may have less potential upside than illiquid holdings, but they are easier to trade during market downturns. In recent months, the strategy was more exposed to the Liquidity factor compared with its Morningstar Category peers as well. This strategy has also tilted toward low-quality stocks, companies with higher financial leverage and lower profitability over peers in recent years. Lacking this ballast, the fund's prospects could rest on its ability to beat peers during economic booms. Similarly, in recent months, the strategy also had less exposure to the Quality factor than peers. In addition, this strategy has an underweight bias to the volatility factor, meaning investing in stocks that have a lower standard deviation of returns. These companies have historically been a valuable ballast to steady portfolio returns during market downturns. In recent months, the strategy also had less Volatility factor exposure than 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 utilities relative to the category average by 52.8 and 8.9 percentage points, respectively. The sectors with low exposure compared to category peers are technology and healthcare, underweight the average by 16.3 and 14.4 percentage points of assets, respectively. The portfolio is positioned across 65 holdings and is quite concentrated. In particular, 36.8% of the portfolio's assets are housed within the top 10 holdings, compared to the category average of 29.9%. And in closing, in terms of portfolio turnover, on a year-over-year basis, 43% of the fund's holdings have changed, whether through increasing, decreasing, or changing a position.

The team is backed by Sara Bellenda, the longest-tenured manager on the strategy, who brings 19 years of listed portfolio management experience. The team boasts an experienced corps of listed portfolio managers, with three others supporting Sara Bellenda. Together, they average 10 years of listed portfolio management experience. None of the portfolio managers here invest in this fund. This hurts the rating because manager investment would align their interests with the strategy's investors.

Note: The People Pillar rating is indirectly assigned by an analyst. The longest-tenured manager of the fund also manages a different product rated by an analyst. Their analyst-assigned People Pillar rating is combined here with the People scores (algorithmic or analyst-assigned) for the fund’s other managers on a tenure-weighted basis.

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.

However, with such a short time frame, it is difficult to draw a conclusion on its prospects until it has completed a full market cycle. In the last two years, this share class has returned 7.6%, compared with the 11.9% return of the category index, the MSCI ACWI Growth Index, for the same period. It also lagged peers as the category’s average return for the period was 8.8%. The share class had a lower Sharpe ratio, a measure of risk-adjusted returns, than the index over the trailing one-year period.

This share class sits in the cheapest quintile of its Morningstar Category. Its affordable fee, considered jointly with the fund’s People, Process, and Parent Pillars, suggests that this share class can deliver positive alpha compared with its category benchmark, explaining its Morningstar Medalist Rating of Silver.