JPMorgan Carbon Transition US Eq ETF JCTR

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

The strategy's sensible investment philosophy merits a High Process Pillar rating. Independent of the rating, analysis of the strategy's portfolio shows it has maintained an overweight in liquidity exposure and volatility exposure compared with category peers. High liquidity exposure is attributed to stocks with a high trading volume, lending managers more flexibility. And high volatility exposure is rooted in stocks that have a higher standard deviation of returns. 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 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 Carbon Transition US Eq ETF earns a High Process Pillar rating.

The most important driver of the rating is its parent firm's superior long-term risk-adjusted performance, as shown by the firm's average 10-year Morningstar Rating of 3.3 stars. This fund tracks an index, which also increases its process rating. Historical data, like Morningstar's Active/Passive Barometer, shows that passively managed funds have generally outperformed their active counterparts, especially over longer time horizons. The parent firm's five-year risk-adjusted success ratio of 55% contributes to the process. The measure indicates the percentage of a firm's funds that survived and surpassed their respective category's median Morningstar Risk-Adjusted Return for the period. Their noteworthy success ratio suggests that this firm does well for investors and that this fund may benefit from that.

The investment strategy as stated in the fund's prospectus is:

The investment seeks investment results that closely correspond, before fees and expenses, and to the performance of the JPMorgan Asset Management Carbon Transition U.S. Equity Index. The fund will invest at least 80% of its assets in securities included in index. The index is designed to capture the performance of companies which have been identified through its rules-based process as better positioned to benefit from a transition to a lower carbon economy while also providing broader U.S. market exposure.

The portfolio is overweight in technology by 4.0 percentage points in terms of assets compared with the category average, and its real estate allocation is similar to the category. The sectors with low exposure compared to category peers are industrials and consumer defensive, with industrials underweighting the average portfolio by 2.6 percentage points of assets and consumer defensive similar to the average. The portfolio is composed of 400 holdings and is less top-heavy than peers. Specifically, 33.0% of the portfolio's assets are concentrated within the top 10 fund holdings, as opposed to the category’s 50.1% average. And finally, in terms of portfolio turnover, this fund trades less regularly than the typical peer in its category, which may result in a lower cost to investors.

There are three managers listed on the fund: Natalia Zvereva, Yazann Romahi, Aijaz Hussain. 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.

As of 2022, this investment stalwart manages more than USD 2.5 trillion in AUM. Composed of various global cohorts and diverse asset classes, the firm has more tightly integrated its capabilities in recent years, notably through the development of proprietary analytical and risk systems. Investment teams are robustly staffed and helmed by seasoned contributors. The firm’s strategies tend to produce reliable portfolios, and several flagship offerings are Morningstar Medalists. Manager incentives align with fundholders'; compensation reflects longer-term performance factors, and portfolio managers invest in the firm’s strategies as part of their compensation plans.

The firm’s funds tend to be well-priced, but they aren’t as competitive as many highly regarded peers of similar scale. Recent product launches include thematic and single-country strategies, both of which carry the potential for volatile performance and flows, along with misuse by investors. The firm remains intrepid when it comes to developing an environmental, social, and governance-focused framework and continues to move into other areas such as direct indexing through its 55iP acquisition and China through its joint venture, but these complicated initiatives take time to assess any real and lasting effect.

Over the past year, it trailed the category index, the Russell 1000 Index, by an annualized 41 basis points, but outperformed the category average by 1.9 percentage points. But more significantly, when extended to a longer time frame, the strategy came out ahead. On a three-year basis, it led the index by an annualized 99 basis points.

However, adjusting for risk unveils the fund in a more complementary light. The share class led the index with a higher Sharpe ratio, a measure of risk-adjusted return, over the trailing three-year period. Often, higher returns are associated with more risk. However, this strategy hewed close to the benchmark's standard deviation. However, the share class proved itself ineffective as it was unable to generate 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 low fee, considered jointly with the fund’s People, Process, and Parent Pillars, indicates 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 Silver.