JPMorgan US Quality Factor ETF earns a High 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. Impressive risk-adjusted performance also supports the process. This can be seen in the fund's five-year alpha calculated relative to the category index, which suggests that the managers have shown skill in their allocation of risk. The parent firm's excellent risk-adjusted performance, as shown by its average 10-year Morningstar Rating of 3.3 stars, contributes to the process as well.
This strategy leans toward smaller, more growth-oriented companies compared with its average peer in the Large Blend Morningstar Category. Looking at additional factor exposure, this strategy has consistently tilted toward companies with relatively higher trading volumes in the last few years. More-liquid assets are easier to buy and sell without adversely moving their prices and tend to provide some ballast during market selloffs. They also are easier to sell to meet redemptions if a host of investors decide to leave the fund in a short period of time. In recent months, the strategy was more exposed to the Liquidity factor compared with its Morningstar Category peers as well. This strategy's portfolio also has had exposure to more stocks with high dividend or buyback yields over peers in these years. High-yield stocks tend to be connected to more mature companies earning enough cash to return some to shareholders. At times, however, extreme market pressure can force them to cut their dividends, which hurts stock performance. Compared with category peers, the strategy also had more exposure to the Yield factor in the most recent month. 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 is a higher-risk, higher-reward approach. In this month, the strategy also had more exposure to the Volatility 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 has allocations in its top two sectors, technology and consumer cyclical, that are similar to the category. The sectors with low exposure compared to category peers are communication services and industrials; however, the allocations are similar to the category. The portfolio is positioned across 260 holdings and its assets are more dispersed than the typical peer in the category. In the most recent disclosure, 20.0% of the fund’s assets were concentrated in the top 10 fund holdings, compared to the category’s 51.0% average. And finally, in terms of portfolio turnover, this fund trades less frequently than the category’s average, potentially limiting costs to investors.