JPMorgan BetaBuilders MSCI US REIT ETF BBRE

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

The strategy's effective investment philosophy supports a High Process Pillar rating. Independent of the rating, analysis of the strategy's portfolio shows it has maintained a significant overweight position in yield exposure and liquidity exposure compared with category peers. High yield exposure is attributed to holding high dividend-paying or buyback stocks, and is suitable for income seekers outside of fixed-income. And a high liquidity exposure is rooted in stocks with higher trading volumes, lending managers more flexibility. 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 BetaBuilders MSCI US REIT ETF earns a High Process Pillar rating.

The most substantial 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. Excellent risk-adjusted performance also contributes to the process, as shown by the fund's five-year alpha calculated relative to the category average, which suggests the process was successful over that period.

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 MSCI U.S. REIT Custom Capped Index. The fund will invest at least 80% of its assets in securities included in the underlying index. The underlying index is a free-float adjusted market-cap weighted index designed to measure the performance of U.S. equity real estate investment trust ("REIT") securities. The fund may invest up to 20% of its assets in exchange-traded futures to seek performance that corresponds to the underlying index.

The portfolio is overweight in real estate by 2.9 percentage points in terms of assets compared with the category average, and its consumer defensive allocation is similar to the category. The sectors with low exposure compared to category peers are consumer cyclical and financial services; however, the allocations are similar to the category. The strategy owns 122 securities and is diversified among those holdings. In its most recent portfolio, 47.7% of the portfolio's assets were concentrated in the top 10 fund holdings, compared to the category’s 62.4% average. And in closing, in terms of portfolio turnover, this fund trades less frequently than the category’s average, potentially limiting costs to investors.

This share class’ quantitatively driven People Pillar content was not generated because of insufficient data. To generate individualized content, the Medalist Rating quantitative analysis requires sufficient data to generate its framework of “ mental models ” designed to mimic content written by analysts.

An algorithmically assigned People Pillar uses an algorithm designed to predict the People Pillar rating analysts would assign the investment product, if they covered it.

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 three years, it trailed the category index, the S&P United States REIT Index, by an annualized 17 basis points, but outperformed its average peer by 1.8 percentage points. And more importantly, when looking across a longer horizon, the strategy struggled to separate itself from the pack. On a five-year basis, it mirrored the index.

When adjusting for risk, the fund is not as favorable. The share class trailed the index with a lower Sharpe ratio, a measure of risk-adjusted returns, over the trailing five-year period. However, this strategy hewed close to the benchmark's standard deviation. Finally, 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 is in the cheapest quintile of its Morningstar Category. Its competitive expense ratio, taken together with the fund’s People, Process, and Parent Pillars, suggests that this share class has the ability to deliver positive alpha relative to the lesser of its median category peer or the category benchmark, leading to its Morningstar Medalist Rating of Silver.