JPMorgan Small Cap Value R3 JSVPX

Fees are a weakness here. The strategy's lofty fees are a high hurdle to clear, as it is priced within the second-highest quintile among peers.

The strategy’s management team earns an Average People Pillar rating. The strategy's sensible investment philosophy earns an Above Average Process Pillar rating. Independent of the rating, analysis of the strategy's portfolio shows it has maintained an overweight volatility exposure and quality exposure compared with category peers. High volatility exposure is attributed to companies with a higher standard deviation of returns. And a low quality exposure is rooted in stocks with higher financial leverage and lower profitability. 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 Small Cap Value Fund earns an Above Average Process Pillar rating.

The main 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. The size of the portfolio management team also bolsters the process. With four portfolio managers, the fund is reasonably well-resourced. However, the process is limited by being an actively managed strategy. Historical data, like Morningstar's Active/Passive Barometer, finds that actively managed funds have generally underperformed their passive counterparts, especially over longer time horizons.

This strategy targets smaller plays than its peers’ average in the Small Value Morningstar Category. But in terms of investment style, it is on par with peers. Looking at additional factor exposure, this strategy has consistently overweighted the volatility factor compared with Morningstar Category peers over the last few years, meaning it invests in stocks with a history of the higher standard deviation of returns. This is a higher-risk, higher-reward approach. In recent months, the strategy was more exposed to the Volatility 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. Such positions do not tend to provide much ballast for a portfolio. Similarly, in recent months, the strategy also had less exposure to the Quality factor than peers. Given the high trading volume of holdings, this fund also tilts toward liquid assets. This gives the managers more flexibility during bear markets to sell without adversely affecting prices. In this month, the strategy also had more exposure to the Liquidity 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 is overweight in real estate and financial services relative to the category average by 7.1 and 3.3 percentage points, respectively. The sectors with low exposure compared to category peers are industrials and technology, underweight the average by 6.9 and 3.0 percentage points of assets, respectively. The portfolio is positioned across 411 holdings and is less top-heavy than peers. Specifically, 7.8% of the strategy's assets are concentrated within the top 10 fund holdings, compared to the category average's 27.9%. 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.

Phillip D. Hart, the longest-tenured manager on the strategy, boasts 14 years of listed portfolio management experience. The team boasts an experienced corps of listed portfolio managers, with three other managers supporting Phillip D. Hart. Together, they average 10 years of listed portfolio management experience. As a team, they manage six investment vehicles together, with a Bronze asset-weighted average Morningstar Medalist Rating, indicating the potential to deliver positive alpha in aggregate. The management team is invested in the fund, but the maximum investment by any manager is between$ 100,000 and$ 500,000. An investment of more than$ 1 million would be ideal to align managers' interests with those of the fund's investors.

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.

It has provided subpar returns compared with peers, but varied returns compared with the category benchmark. Specifically, over the past seven-year period, this share class trailed its category's average return by an annualized 93 basis points. Although compared to peers, the fund has been a laggard, performance compared to the category benchmark, Russell 2000 Value Index, has been more encouraging. This share class exceeded the index by 60 basis points over a five-year period and lagged by 21 basis points over the seven-year period.

If risk is accounted for, then this strategy is more competitive. The share class led the index with a higher Sharpe ratio, a measure of risk-adjusted return, over the trailing five-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 five-year period, against the category group index: a benchmark that encapsulates the performance of the broader asset class.

This share class sits in the second-costliest quintile of its Morningstar Category. Its pricey fee, in conjunction with the fund’s People, Process, and Parent Pillars, suggests that this share class is unlikely to deliver positive alpha compared with its category benchmark, explaining its Morningstar Medalist Rating of Neutral.