JPMorgan Climate Change Solutions ETF TEMP

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

The strategy's sensible investment philosophy merits an Above Average Process Pillar rating. Independent of the rating, analysis of the strategy's portfolio shows it has maintained a significant overweight position in liquidity exposure and an underweight in quality exposure compared with category peers. 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 management team earns an Above 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 Climate Change Solutions ETF earns an Above Average Process Pillar rating.

The main contributor to the rating is the parent firm's five-year risk-adjusted success ratio of 56%. 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 stability of talent across its parent firm also bolsters the rating. The firm's asset-weighted manager tenure of 20 years demonstrates its ability to retain portfolio managers. 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 tends to hold smaller, more undervalued companies compared with its average peer in the Global Large-Stock Growth Morningstar Category. Examining additional factor exposure, this fund has constantly tilted toward stocks with higher trading volumes than its Morningstar Category Peers over the past few years. This gives the managers more flexibility during bear markets to sell without adversely affecting prices. In recent months, the strategy was more exposed to the Liquidity factor compared with its Morningstar Category peers as well. This strategy has also favored low-quality stocks. This means the fund avoids holding companies that are consistently profitable, growing, and have solid balance sheets. Such positions do not tend to provide much ballast for a portfolio. Similarly, in recent months, the strategy also had less exposure to the Quality factor than peers. In addition, this strategy has exhibited a tilt toward higher-volatility stocks in these years, meaning companies that have a higher historical standard deviation of returns compared with peers. This orientation tends to pay off most prominently when markets are hot. In recent months, however, the strategy had less Volatility factor exposure 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 utilities relative to the category average by 52.1 and 8.1 percentage points, respectively. The sectors with low exposure compared to category peers are technology and healthcare, underweight the average by 15.7 and 14.4 percentage points of assets, respectively. The portfolio is positioned across 66 holdings and is relatively top-heavy. Of the strategy's assets, 37.0% are concentrated within the top 10 holdings, compared to the category’s 28.9% average. And finally, in terms of portfolio turnover, looking at year-over-year movements, 43% of the fund's holdings have turned over, 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 four others supporting Sara Bellenda. Together, they average 14 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 track record, fortunes could easily reverse. In the last two years, this share class has returned 3.2%, compared with the 7.4% 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 5.4%. The share class trailed the index with a lower Sharpe ratio, a measure of risk-adjusted returns, over the trailing one-year period.

This share class sits in the cheapest quintile of its Morningstar Category. Its affordable fee, paired with the fund’s People, Process, and Parent Pillars, suggests that this share class has high potential to deliver positive alpha relative to its category benchmark, explaining its Morningstar Medalist Rating of Silver.