JPMorgan BetaBldrs 1-5 Yr US Aggt Bd ETF BBSA

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

The strategy's investment process inspires confidence and earns an Above Average Process Pillar rating. Independent of the rating, analysis of the strategy's portfolio shows it has maintained a significant underweight position in corporate bonds and A rated bonds compared with category peers. 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.

Morningstar's evaluation of this security's process aims to determine the likelihood that it will outperform its Morningstar Category index on a risk-adjusted basis over the long term.

The leading factor in the rating is its parent firm's superior 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, such as Morningstar's Active/Passive Barometer, shows that passively managed funds have generally outperformed their active counterparts, especially over longer time horizons. However, the process is limited by the experience of the management team, which averages four years at this fund.

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 Bloomberg Short-Term U.S. Aggregate Bond Index. The index measures the performance of U.S. dollar denominated investment grade taxable bonds with remaining effective maturities between one and five years. The fund will invest at least 80% of its assets in securities included in the underlying index.

This strategy's 12-month yield is 3.5%, lower than its average peers' 4.0%. Plus, its 30-day SEC yield (a standardized, point-in-time estimate of the fund’s future income return) sits at 4.0%. Typically, a lower yield comes with the benefit of less credit risk. The portfolio holds assets with a higher average surveyed credit quality of AA, compared with the typical peers' A, and it holds no non-investment-grade assets, despite the average peers' 2%. Lower-credit-risk strategies are often able to navigate bear markets more effectively. In terms of long-term interest-rate risk, this strategy is on par with peers. The longer a strategy's duration, the more sensitive it is to shifts in interest rates. This fund, with a 2.7-year duration, is expected to gain 2.7% of its net asset value if interest rates drop by 1 percentage point, and vice versa.

There are three managers listed on the fund: Jan Ho, Mark Willauer, Evan Olonoff. The team is inadequately equipped. Together, they average four years of portfolio management experience. Together, they manage a total of six strategies, with a Silver asset-weighted average Morningstar Medalist Rating, demonstrating their potential to deliver positive alpha relative to the category median in aggregate. The team has lacked continuity recently, with Naveen Kumar leaving about a month ago, detracting from its rating. Even though it is a passive fund, high turnover can still hinder the effectiveness of the investment process.

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.

Narrowing in on the past three-year period, it trailed the category index, the Bloomberg Barclays U.S. Aggregate Government/ Credit 1-3 Year Index, by an annualized 83 basis points, and underperformed the category average by 89 basis points. And more importantly, when looking across a longer horizon, the strategy fell behind the index. On a five-year basis, it trailed the index by an annualized 33 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 five-year period. These strong risk-adjusted results have not resulted in a bumpier ride 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 is in the cheapest quintile of its Morningstar Category. Its attractive fee, considered jointly with the fund’s People, Process, and Parent Pillars, indicates that this share class should be able to deliver positive alpha versus the lesser of its median category peer or the category benchmark, explaining its Morningstar Medalist Rating of Bronze.