JPMorgan BetaBuilders $ InvmGrdCorpBdETF BBCB

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

The strategy merits an Above Average Process Pillar rating. 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, Process 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.

Eligible bonds must be U.S.-dollar-denominated with a minimum par amount outstanding of$ 300 million and a fixed coupon rate. The index excludes contingent capital securities with explicit balance-sheet-based triggers, bonds with equity features(warrants, preferred, and so on), and municipal securities. It weights selected bonds by their market value and rebalances monthly.

Market-cap weighting reflects the issuance activities in this category, which has mostly been in the lower rungs of the investment-grade segment. Nearly half of the fund’s portfolio tends to be invested in BBB rated bonds, which is in line with the category average. However, the fund is overweight in A rated bonds, parking around 40% of its portfolio in these issues, while the average category peer tends to allocate only around 25%-30%. Category peers can also take small steps outside of the investment-grade space and invest a small portion of their portfolio in BB bonds. As a result, the fund takes on slightly less credit risk than the category average, which should help during credit shocks.

The fund’s average duration is slightly higher than that of its category peers, as it slightly overweights bonds at the longer end of the maturity curve. As of August 2022, its average effective duration was around 7.5 years versus 7.2 years for the category average.

Despite these differences, the fund’s sector allocations closely resemble that of the opportunity set in its category. Nearly one third of its assets tend to be invested in bonds from financials sector firms, reflecting the issuance activity in the investment-grade credit space.

Note: The Process Pillar rating and analysis are indirectly assigned by an analyst. When an analyst covers a passively managed vehicle that tracks a particular index, Morningstar associates the Process Pillar rating assigned to that vehicle with the index concerned. Morningstar then maps the Process Pillar associated with a given index to any other uncovered passive strategies that track the same index. This ensures that the analyst’s view is leveraged whenever available and promotes consistency when analyzing passive vehicles associated with a given index.

There are three managers listed on the fund: Mark Willauer, Qiwei Zhu, Sameer Iqbal. The team is largely unproven, as its members only average three years of portfolio management experience. Though they do not manage other products together, managers may manage them individually.

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 mirrored the category index, the Bloomberg Barclays U.S. Corporate Bond Index, but underperformed its average peer by 33 basis points. And more importantly, when extended to a longer time frame, the strategy's performance looks bleak. On a five-year basis, it lagged the index by an annualized 24 basis points.

When risk is properly accounted for, the strategy is not any more compelling. The share class had a lower Sharpe ratio, a measure of risk-adjusted returns, than the index over the trailing five-year period. This subpar risk-adjusted performance has not resulted in higher volatility, as measured by their standard deviation, which is close to the benchmark. However, the share class proved itself effective by generating positive alpha, over the same period, against the category group index: a benchmark that encapsulates the performance of the broader asset class.

This fund is within the cheapest quintile of its Morningstar Category. Its competitive expense ratio, in conjunction with the fund’s People, Process, and Parent Pillars, suggests that this share class is well-positioned to generate positive alpha against the lesser of its median category peer or the category benchmark, explaining its Morningstar Medalist Rating of Bronze.