JPMorgan Active Value ETF JAVA

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 an overweight 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 Active Value ETF earns an Above Average Process Pillar rating.

The most substantial contributor to the rating is its parent firm's impressive long-term risk-adjusted performance, as shown by the firm's average 10-year Morningstar Rating of 3.3 stars. The size of the portfolio management team also bolsters the rating. With four portfolio managers, the fund is reasonably well-resourced. However, the process is limited by the number of months that the management team has been running this vehicle together.

This strategy tends to pick smaller market-cap firms compared with the average fund in its peer group, the Large Value Morningstar Category. But in terms of style (value/growth) exposure, it does not have much of a bias and resembles the category's typical portfolio. Examining 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 has also favored low-quality stocks. This means the fund avoids holding companies that are consistently profitable, growing, and have solid balance sheets. 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. Additionally, the managers have consistently taken on more risk, demonstrated by higher volatility exposure than peers. This contributes to 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, consumer cyclical and real estate, that are similar to the category. The sectors with low exposure compared to category peers are communication services and technology, with communication services underweighting the average portfolio by 2.6 percentage points of assets and technology similar to the average. The portfolio is positioned across 165 holdings and is diversified among those holdings. In its most recent portfolio, 21.7% of the strategy's assets were concentrated in the top 10 fund holdings, compared to the category’s 29.7% average. And in closing, in terms of portfolio turnover, this fund trades more frequently than its average peer, potentially racking up additional expenses for investors and creating a drag on performance.

David Silberman’s veteran status, with over 25 years of listed portfolio management experience, brings a wealth of experience to the table. The team boasts an experienced corps of listed portfolio managers, with three other managers supporting David Silberman. Together, they average over 25 years of listed portfolio management experience. As a team, they manage two investment vehicles together, with a Silver asset-weighted average Morningstar Medalist Rating, indicating the potential to deliver positive alpha in aggregate. None of the managers here invest any money in the strategy, which is disappointing, as such investments help align managers' interests with fundholders.

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.

J.P. Morgan is a well-resourced, diligent, and responsible steward of client assets. Investment teams are seasoned and stalwart, especially in equity and fixed income, the latter of which has successfully undergone substantial transformation in recent years. The firm offers competitive compensation that is aligned with fundholders and shows strong retention at senior levels of the organization. It demonstrates a culture of constant innovation and willingness to evolve. For example, J.P. Morgan recently expanded its investment committee process through which senior leaders review various teams and strategies, and it continues to develop proprietary portfolio management and risk oversight tools. Some funds still face high fee hurdles, but the firm has generally lowered expenses as it has grown.

The firm isn't without its complications. J.P. Morgan's product offering is extensive, and some areas need improvement. For instance, its multi-asset business has faced some challenges as a result of complex investment processes. The firm continues to build out its footprint in China, but its efforts there remain unproven. Although not every strategy is the best in its class, J.P. Morgan remains earnest in the pursuit of excellence, and investors are well-served.

In the last two years, this share class has returned 14.8%, even with the return of the category benchmark, the Russell 1000 Value Index, for the same period. However, it was also even with peers as the category’s average return for the period was 14.9%. The share class led the index with a higher Sharpe ratio, a measure of risk-adjusted return, over the trailing one-year period.

This share class lands in the cheapest quintile of its Morningstar Category. Its low fee, in conjunction with the fund’s People, Process, and Parent Pillars, indicates that this share class has high potential to deliver positive alpha versus its category benchmark, explaining its Morningstar Medalist Rating of Silver.