JPMorgan Diversified Return EMkts Eq ETF JPEM

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

The strategy's effective investment philosophy supports a High Process Pillar rating. Independent of the rating, analysis of the strategy's portfolio shows it has maintained a significant overweight position in yield exposure and an underweight in volatility exposure compared with category peers. High yield exposure is attributed to holding more stocks with high dividend or buyback yields. And low volatility exposure is rooted in stocks that have a lower 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 Diversified Return EMkts Eq ETF earns a High Process Pillar rating.

The most notable contributor to the rating is that this fund tracks an index. Historical data, like Morningstar's Active/Passive Barometer, finds that passively managed funds have generally outperformed their active counterparts, especially over longer time horizons. The parent firm's superior risk-adjusted performance, as shown by its average 10-year Morningstar Rating of 3.3 stars, also influences the rating. Excellent risk-adjusted performance also supports the rating, as shown by the fund's five-year alpha calculated relative to the category index, which suggests that the managers have shown skill in their allocation of risk.

This strategy leans toward smaller, more value-oriented companies compared with its average peer in the Diversified Emerging Mkts Morningstar Category. Examining additional factor exposure, this strategy has continually displayed high-yield exposure compared with Morningstar Category peers during recent years, holding more companies returning cash to shareholders via dividends or buybacks. High-yield stocks tend to be connected to more mature companies earning enough cash to return some to shareholders. At times, however, extreme market pressure can force them to cut their dividends, which hurts stock performance. In recent months, the strategy was more exposed to the Yield factor compared with its Morningstar Category peers as well. This strategy has also exhibited a tilt toward low-volatility stocks in recent years, meaning companies with a lower historical standard deviation of returns. These low-risk stocks are typically at their best when markets are not. Low volatility exposure contributes to limited loss on the downside at the cost of a lag in bull markets. Similarly, in recent months, the strategy also had less exposure to the Volatility factor than peers. In addition, this strategy has not maintained a defensive tilt, demonstrated by low exposure to the quality factor. This means the fund avoids holding firms that are consistently profitable, growing, and have solid balance sheets. Lacking this ballast, the fund's prospects could rest on its ability to beat peers during economic booms. In recent months, the strategy also had less Quality 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 utilities and industrials relative to the category average by 6.9 and 5.8 percentage points, respectively. The sectors with low exposure compared to category peers are technology and consumer cyclical, underweight the average by 18.7 and 4.5 percentage points of assets, respectively. The strategy owns 545 securities and is diversified among those holdings. In its most recent portfolio, 9.9% of the fund’s assets were concentrated in the top 10 fund holdings, compared to the category’s 26.0% average. And finally, in terms of portfolio turnover, this fund trades less frequently than the category’s average, potentially limiting costs to investors.

There’s a deep bench of five managers listed on the fund. Together, they manage a total of two strategies, with solid long-term prospects. The strategies average a Gold asset-weighted algorithmically-assigned average Morningstar Medalist Rating, indicating a position to deliver positive alpha relative to the category median in aggregate.

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.

This share class led its average peer by an annualized excess return of 74 basis points over a nine-year period. And it also exceeded the return of the category benchmark, the MSCI Emerging Markets Index, by an annualized 76 basis points over the same period.

The risk-adjusted performance only continues to make a case for this fund. The share class led the index with a higher Sharpe ratio, a measure of risk-adjusted return, over the trailing five-year period. Sometimes better performance is found among strategies with higher risk profiles. However, this strategy had a lower standard deviation, 17.0%, compared to the benchmark’s 18.7%. 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 is within the cheapest quintile of its Morningstar Category. Its affordable expense ratio, considered jointly with the fund’s People, Process, and Parent Pillars, indicates that this share class is well-positioned to generate positive alpha versus its category benchmark, leading to its Morningstar Medalist Rating of Gold.