Undiscovered Managers Behavioral Val R3 UBVTX

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

The strategy's managers invest alongside shareholders, which helps it earn a High People Pillar rating. The strategy's effective investment approach earns an Above Average Process Pillar rating. Low quality exposure is attributed to stocks with higher financial leverage and lower profitability. And a high yield exposure is rooted in holding high dividend-paying or buyback stocks. The strategy's parent organization earns the firm an Above Average Parent Pillar rating, and this rating is inherited from vehicles belonging to the same branding entity and is indirectly assigned by an analyst.

Undiscovered Managers Behavioral Val Fd earns an Above Average Process Pillar rating.

The most important driver of the rating is the fund's excellent long-term risk-adjusted performance. This can be seen in its five-year alpha calculated relative to the category index, which suggests that the managers have shown skill in their allocation of risk. The parent firm's impressive risk-adjusted performance, as shown by its average 10-year Morningstar Rating of 3.3 stars, also influences the rating. Lastly, the process is limited by being an actively managed strategy. Historical data, such as Morningstar's Active/Passive Barometer, finds that actively managed funds have generally underperformed their passive counterparts, especially over longer time horizons.

This strategy targets deeper value plays than its peers’ average in the Small Value Morningstar Category. But in terms of size exposure, it is similar to the average. Analyzing additional factors, this strategy has consistently favored low-quality stocks compared with Morningstar Category peers over the past few years. Lacking this ballast, the fund's prospects could rest on its ability to beat peers during economic booms. In the latest month, the strategy was also less exposed to the Quality factor compared with Morningstar Category peers. The managers have also tended to overweight yield during recent years, shown by the portfolio's high exposure to dividends or buybacks. Higher-yield stocks can provide steady income, but also have their risks. Dividend payers may cut payouts, for instance, if their earnings fall. Compared with category peers, the strategy also had more exposure to the Yield factor in the most recent month. In addition, this strategy has had a bias away from momentum stocks during these years. Momentum investors tend to expect stocks that have done well recently to continue to do so in the short term. Momentum approaches can entail higher turnover and trading costs since the top stocks can often change. In recent months, the strategy also had less Momentum factor exposure than 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 financial services and utilities relative to the category average by 10.9 and 5.8 percentage points, respectively. The sectors with low exposure compared to category peers are technology and industrials, underweight the average by 7.3 and 2.9 percentage points of assets, respectively. The portfolio has 104 holdings and invests 29.6% of assets in its top 10 holdings, similar to the category average.

The most meaningful contributor to the rating is its parent firm's five-year success ratio of 54%. The measure indicates the percentage of a firm's funds that survived and beat their respective category's median return for the period. The rating also gains because at least one manager has invested more than$ 1 million in the strategy, indicating their confidence in the strategy. The portfolio managers' outperformance at the funds they run, as measured by their combined three-year manager excess returns, reinforces the rating further.

David M. Potter, the longest-tenured manager on the strategy, boasts 19 years of listed portfolio management experience. David M. Potter has an experienced listed co-manager. Together, they average 13 years of listed portfolio management experience.

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 a seven-year period, this share class outperformed the category’s average return by 1.8 percentage points annualized. And it also outperformed the category index, the Russell 2000 Value Index, by an annualized 2.5 percentage points over the same period.

The risk-adjusted performance only continues to make a case for this fund. The share class outstripped the index with a higher Sharpe ratio, a measure of risk-adjusted return, over the trailing five-year period. However, these strong risk-adjusted results resulted in more volatility for investors. This strategy took on elevated risk, as measured by a higher standard deviation, 26.8%, compared to the benchmark's 25.2%. 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 imposes a fee that places it in its Morningstar Category's second-costliest quintile. Despite this fee, the fund’s People, Process, and Parent Pillars suggest this share class should be able to deliver positive alpha relative to its category benchmark, leading to its Morningstar Medalist Rating of Silver.