JPMorgan Europe Dynamic A VEUAX

JPM Europe Dynamic's strengths lie in its stable and effective team that is well-supported by a far-reaching organization, while the investment process does not stand out, in our view.

Team head Jon Ingram has steered this strategy since 2005, providing continuity. Comanager Alex Whyte joined the roster in late 2023 ahead of former comanager John Baker's retirement from the industry in 2024, whereas Blake Crawford was appointed in April 2019. Along with them, Victoria Helvert and recent hire Thomas Harray round out the Dynamic team, which is part of the wider international-equity group at JPM Asset Management. They sit alongside the research and implementation teams, working closely with them to execute the approach. The global analyst bank, whose bottom-up stock research provides deeper insights and fundamental analysis, is also a positive.

This stable team is well-versed in the process, which attempts to combine quantitative research and fundamental analysis to target relatively cheaper, higher-quality stocks with an improving business outlook. The quantitatively driven model underpinning this offering has been in place since 2000, though it has evolved with ongoing enhancements implemented by the dedicated quantitative unit led by Nick Horne. The model screens out the least liquid stocks in Europe and identifies potential opportunities. Daily meetings are then held by the team to review the model's output and cover company updates, published earnings changes, adjustments to estimates, and other relevant news flow around which analysts may carry out further research. The best stock ideas should display positive quality and momentum characteristics, while also being deemed attractively valued. The team ultimately combines 60-100 holdings to build a core portfolio, with new positions typically initiated on companies displaying positive earnings momentum. The portfolio is sufficiently diversified, but its exposure to the momentum factor is meaningful and usually ranks among the highest in its category. This leads to a high portfolio turnover of around 150% per year, which increases all-in costs and requires a hands-on approach. Internal risk systems are dynamic, helping to provide a good handle on positioning, style, and active risk contributions in real time.

Over the current management team's tenure, performance is ahead of the MSCI Europe Index and Europe large-cap blend equity Morningstar Category average. However, the strategy tends to be riskier than peers, and its outperformance has been uneven. It lagged the market four calendar years in a row up to the end of 2019, which was its worst consecutive run. The process ultimately hinges on the persistence of factor premiums: When value and especially momentum are out of favor, the strategy struggles to keep up with the broader market. This works both ways, though, as factor exposures represented a tailwind in 2020–22 as well as in the first half of 2024. Overall, the strategy is expected to deliver positive outcomes in stable market environments, where earnings and price momentum are the driving forces. On the other hand, similar to many quantitative approaches, inflection points and rapidly changing market conditions may prove challenging to navigate.

The quantitative model screens the European universe on three characteristics: value, quality, and momentum(both price and earnings). This serves as an objective foundation to direct the managers' attention. The team meets daily to cover company updates, published earnings changes, adjustments to estimates, and other relevant news. Managers may instigate follow-up research to assess the nature of earnings upgrades, and qualitative data validation is key to ensuring the model's recommendations have sound foundations. They also consider environmental, social, and governance factors and rely on both sell-side research and the internal analyst team to corroborate their investment theses. Internal risk systems also help them monitor style and factor exposures. The managers are unconstrained in terms of benchmark-relative deviations but take a measured approach to portfolio construction. They ensure that the portfolio has positive exposures to the quality, value, and momentum factors at all times. The magnitude of these tilts can vary over time, though, depending on the managers' assessment of the opportunity set. That said, the team typically builds reasonably diversified portfolios, balancing active risk between factors and stock-specific characteristics. A systematic" failure model" should also help the team identify and avoid stocks with meaningful downside risks. The team looks at each stock holistically, but earnings momentum has consistently proved to be the primary driver of buy-and sell-decisions, with less value added from the fundamental element. Indeed, the team trades aggressively and frequently, which is reflected in generally higher transaction costs, eating away at net excess returns. All in all, the process has sensible foundations and is fairly structured but depends to a significant degree on solid execution. As such, we think its repeatability is more uncertain. The reliance on a single factor(momentum) also limits our conviction, leading to an Average Process Pillar rating.

This portfolio consists of 60 to 110 positions. The number of holdings is ultimately a function of market volatility but typically sits at the lower end of the range in normal market conditions. Individual weightings mainly depend on relative risk/reward, managers’ conviction, liquidity, and portfolio construction considerations. The team aims to have positive exposure to three factors—value, quality, and momentum—at all times, although the weightings change dynamically and are a product of bottom-up stock selection, as well as the managers' outlook on the relative attractiveness of each factor, to some extent. That said, the strategy tends to keep a meaningful and persistent tilt to the momentum factor–among the highest in its category. The quality factor was added to the quant model in early 2012 to increase resilience in down markets. The team can seek opportunities down the market-cap scale, too, with exposure changing based on the model's indications.

The portfolio is frequently turned over, with an average holding period of less than one year. Risk is managed on an index-relative basis. Managers tend to avoid outsize bets on any single segment of the market, even if the mandate is largely unconstrained. In practice, active sector and country deviations tend to be moderate and rarely exceed 5%. Similarly, active exposures on single stocks do not exceed 2%, normally. All in all, the strategy does not exhibit notable, persistent sector biases. The strategy's index-relative active share is usually around 70%.

It is led by Jon Ingram, an investor with 24 years of experience entirely spent at J.P. Morgan, where his tenure at his longest-running mandates spans more than 15 years. Ingram leads a small unit of four members, co-running this strategy alongside comanagers Blake Crawford and Alex Whyte, who have both also spent their entire careers at the firm and boast more than a decade of investment experience. The three have equal say on investment decisions, but Ingram is ultimately responsible for performance. Crawford was appointed to this strategy in April 2019 following the departure of Anis Lahlou-Abid, who was a named manager since 2011. Whyte joined the roster in late 2023 ahead of John Baker's retirement from the industry in 2024 after more than two decades of tenure. Lahlou-Abid and Baker were the only people to leave this unit in the past decade. Victoria Helvert and recent junior hire Thomas Harray round out the Dynamic team. The outfit runs a range of European and technology-focused portfolios. Within the firm's European equity fund range, these tend to be higher-conviction strategies. Given the managers' hands-on approach, workload bears watching, but the breadth and depth of resources available to them represent a key competitive advantage, in our view. This unit is part of the much broader International Equity Group within JPM Asset Management. The team leverages the fundamental, operational, and quantitative capabilities of the wider organization, leaning on its global analyst bank for bottom-up stock research while also counting on the quantitative research group headed by Nick Horne and responsible for the systematic model deployed in this process. Additional support comes from the implementation team for cash flow management, as well as the sustainable investing team for ESG insights. The trading and analytics function is also critical, as managers rely on a range of systems and tools developed in-house for idea generation, research, and portfolio construction. Overall, managers work closely together while also benefiting from the wider platform. This stable team is also well-versed in the process, further supporting an Above Average People rating.

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 strategy tends to be slightly riskier than its peers and benchmark, though, exhibiting typically a higher standard deviation of returns and more pronounced drawdowns. Still, over the long term, it produced superior risk-adjusted returns, as measured by the fund's alpha and Sortino and Sharpe ratios. While ahead of its benchmark and peers over longer stretches, the strategy's outperformance has been uneven. It underperformed four calendar years in a row up to the end of 2019, which was its worst consecutive run. As with other strategies that rely on quantitative models, this approach can sometimes struggle at market inflection points. The process also hinges on the persistence of factor premiums: When value and especially momentum are out of favor, the strategy struggles to keep up with the broader market. This works both ways, though, as factor exposures represented a tailwind between 2020 and 2022. Adding to technology-led momentum names drove returns in 2020. As value came back in the latter part of 2020 and into 2021, the process nudged the managers toward value cyclical names, which was also beneficial. In 2022, the strategy benefited from its selection of value names with positive earnings momentum, notably among financials and energy names. In 2023, the strategy's value and momentum tilts hindered relative performance, with stock selection in the industrials and technology sectors the key detractors. Conversely, the fund's momentum bias represented a strong tailwind to relative results in 2024 through the end of August.

Based on our assessment of the fund’s People, Process, and Parent Pillars in the context of these expenses, we don’t think this share class will be able to deliver positive alpha relative to the category benchmark index, explaining its Morningstar Medalist Rating of Neutral.