JPMorgan Carbon Transition US Eq ETF JCTR

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

The strategy's investment process inspires confidence and earns a High Process Pillar rating. Independent of the rating, analysis of the strategy's portfolio shows it has maintained an overweight in liquidity exposure and volatility exposure compared with category peers. High liquidity exposure is attributed to stocks with a high trading volume, lending managers more flexibility. And high volatility exposure is rooted in stocks that have a higher standard deviation of returns. 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 Carbon Transition US Eq ETF earns a High Process Pillar rating.

The primary contributor to the rating is its parent firm's excellent long-term risk-adjusted performance, as shown by the firm's average 10-year Morningstar Rating of 3.3 stars. This fund tracks an index, which also increases its process rating. Historical data, like Morningstar's Active/Passive Barometer, shows that passively managed funds have generally outperformed their active counterparts, especially over longer time horizons. The parent firm's five-year risk-adjusted success ratio of 53% strengthens the process. The measure indicates the percentage of a firm's funds that survived and outperformed their respective category's median Morningstar Risk-Adjusted Return for the period. Their respectable success ratio suggests that this firm does well for investors and that this fund may benefit from that.

The investment strategy as stated in the fund's prospectus is:

The investment seeks investment results that closely correspond, before fees and expenses, and to the performance of the JPMorgan Asset Management Carbon Transition U.S. Equity Index. The fund will invest at least 80% of its assets in securities included in index. The index is designed to capture the performance of companies which have been identified through its rules-based process as better positioned to benefit from a transition to a lower carbon economy while also providing broader U.S. market exposure.

The portfolio is overweight in technology by 4.2 percentage points in terms of assets compared with the category average, and its real estate allocation is similar to the category. The sectors with low exposure compared to category peers are industrials and consumer defensive, with industrials underweighting the average portfolio by 2.7 percentage points of assets and consumer defensive similar to the average. The strategy owns 414 securities and its assets are more dispersed than the typical peer in the category. In the most recent disclosure, 33.0% of the strategy's assets were concentrated in the top 10 fund holdings, as opposed to the category’s 48.5% average. And finally, in terms of portfolio turnover, this portfolio turns over its holdings less quickly than peers, potentially leading to lower costs for investors and eliminating a drag on performance.

There are three managers listed on the fund: Yazann Romahi, Aijaz Hussain, Natalia Zvereva. Though they do not manage other products together, managers may manage them individually.

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.

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.

Over the past year, it mirrored the category index, the Russell 1000 Index, but outperformed the category average by 2.3 percentage points. But more importantly, when widening the time horizon, the strategy surpassed the index. On a three-year basis, it outperformed the index by an annualized 90 basis points.

When accounting for risk, however, the strategy looks more appealing. The share class outstripped the index with a higher Sharpe ratio, a measure of risk-adjusted return, over the trailing three-year period. Notably, these strong risk-adjusted results have not come with more volatility for investors. This strategy took on similar risk as the benchmark, as measured by standard deviation. However, the share class proved itself ineffective as it was unable to generate alpha, over the same period, against the category group index: a benchmark that encapsulates the performance of the broader asset class.

This fund sits in the cheapest quintile of its Morningstar Category. Its affordable expense ratio, considered jointly with the fund’s People, Process, and Parent Pillars, suggests that this share class has high potential to deliver positive alpha against the lesser of its median category peer or the category benchmark, leading to its Morningstar Medalist Rating of Silver.