JPMorgan Growth Advantage R6 JGVVX

JPMorgan Growth Advantage remains a great option in the large-growth arena.

This best-ideas strategy benefits from a deep and accomplished roster of analysts and portfolio managers. As an all-cap offering aiming to beat the Russell 3000 Growth Index, it harvests and combines 60 plus top picks from JPMorgan Large Cap Growth, JPMorgan Mid Cap Growth, and JPMorgan Small Cap Growth. The various teams supporting these strategies, as well as former lead manager Tim Parton, deserve credit for consistently identifying their better ideas for inclusion in this vehicle. It has outperformed a combination of the underlying strategies weighted in proportion to this strategy’s market-cap breakout. JPMorgan’s talented core research team also offers insights that contribute to this strategy.

Current lead manager Felise Agranoff is still a relative newcomer to the large-cap scene, but she had comanaged the strategy for more than three years before assuming control in March 2024. She also has deep familiarity with the JPMorgan research platform given her two decades at the firm, much of which she spent focused on mid-caps and comanaging JPMorgan Mid Cap Growth, which landed in the top quartile of its peer group over the past five years.

The strategy’s flexibility to invest across market caps has been a boon to performance historically, and that will remain a feature in addition to relatively low turnover and a slight momentum bias. An acute awareness of factor exposures and positioning relative to the benchmark will also remain consistent.

A significant development could take effect in December 2024 if fundholders approve the mutual fund’s change to nondiversified status for regulatory purposes. This change would remove limits on how much capital could be invested in stocks representing 5% or more of assets. With a handful of index constituents larger than this threshold, such a move would afford greater freedom to express active bets, which would be an incremental positive.

While it falls in the large-growth Morningstar Category, this strategy has long benefited from the ability to invest in small/mid-cap companies. Indeed, many of its best ideas weren’t large caps when first purchased in the portfolio, such as Tesla in 2011 and Netflix in 2013. Managers Felise Agranoff and Larry Lee have free range to select the top ideas from across J.P. Morgan's growth equity platform, though they ensure the resulting portfolio doesn't fall too far out of line from the composition of the Russell 3000 Growth Index. The team has thrived in this more focused framework, tending to own more of the firm’s better-performing stocks while avoiding many of the least successful holdings. The strategy usually tilts toward stocks with higher growth and momentum profiles than the benchmark, consistent with the underlying strategies from which it draws ideas.

With the roaring success of the large-growth segment, many of the benchmark’s largest constituents grew to huge weightings that would be impossible to match because of the mutual fund’s regulatory classification as a diversified fund. Investors may vote to remove that constraint as of December 2024, which would be an incremental positive, though Agranoff says it wouldn’t materially alter how she manages the portfolio.

This is an all-cap portfolio, but it has leaned more heavily on large caps in recent years. As of June 2024, large- and mega-cap stocks took up about 80% of assets versus around 50% a decade earlier. Growth in the assets of this strategy and at JPMorgan Small Cap Growth likely played a role in a shift away from small caps, although the small-cap fund’s closing to new investors in 2021 helped preserve this fund's ability to own some of the same stocks, even if at modest weightings. This portfolio’s allocation to mid-caps continues be relatively large at 21% of assets as of June 2024, roughly twice that of the Russell 3000 Growth Index prospectus benchmark.

Though the larger market-cap names at the top of the portfolio were competitively advantaged and profitable as of June, the rest of the portfolio was less so. The overall portfolio had less exposure to companies with wide Morningstar Economic Moat Ratings than the benchmark.

The portfolio's average long-term earnings growth projections and average valuation measures tend to exceed those of the benchmark. This makeup courts volatility, but the managers are careful with sizing positions that may have a wider dispersion of outcomes.

Key active bets versus the benchmark as of June included underweightings in the largest companies such as Apple, with overweightings in firms such as Mastercard.

This fund’s success has always been a team effort. While former lead manager Tim Parton added value as a stock-picker for more than two decades, he has benefited from a good pool of ideas generated by the three other strategies that serve as feeders for this fund. Giri Devulapally of JPMorgan Large Cap Growth and Eytan Shapiro of JPMorgan Small Cap Growth bring decades of experience and good track records. New lead manager Felise Agranoff has been a contributor here, too, through her work as comanager of JPMorgan Mid Cap Growth since 2016 and before that as a top-performing small- and mid-cap analyst. Mid-caps typically take up around 20%-30% of assets here and will remain a key differentiator versus large-growth peers.

While Agranoff isn’t a proven large-cap manager, she has had plenty of time to prepare for her new role given her November 2020 ascension to comanager. She will also still benefit from dedicated large- and small/mid-cap analyst teams that drive ground-level research.

She also receives valuable support from comanager Larry Lee. He has over 30 years of industry experience, 18 of them at J.P. Morgan.

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.

The mutual fund’s institutional share class landed in the top decile of the large-growth category peer group over the trailing five-, 10-, and 15-year periods ended June 2024. It also handily beat the Russell 3000 Growth Index prospectus benchmark and even the more challenging Russell 1000 Growth Index category benchmark over those periods. The outperformance has been rather consistent, too, and was not concentrated in one or two periods. It has also steadily outperformed a custom benchmark composed of the strategies from which it draws ideas.

Investors should keep in mind that the strategy has also been volatile, tending to outperform in rising markets but decline more sharply in down markets. Its most noticeable period of underperformance was early 2016, a time when investors fled high-growth stocks in response to fears of a slowing global economy. However, process tweaks and well-timed calls to reduce risk have resulted in better performance in down markets since, notably in 2022.

Since the start of 2023, when a small set of mega-caps strongly outperformed broader market, the fund has still held its own thanks to great mid-cap picks such as industrial companies Trane Technologies and Quanta Services.

Based on our assessment of the fund’s People, Process, and Parent Pillars in the context of these expenses, we think this share class will be able to deliver positive alpha relative to the category benchmark index, explaining its Morningstar Medalist Rating of Silver.