JPMorgan Divers Ret US Mid Cp Eq ETF JPME

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

The strategy's investment process inspires confidence and earns a High Process Pillar rating. Independent of the rating, analysis of the strategy's portfolio shows it has maintained an underweight position in volatility exposure and an overweight in yield exposure compared with category peers. Low volatility exposure is attributed to stocks with a lower standard deviation of returns. And a high yield exposure is rooted in holding high dividend-paying or buyback stocks. 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 Divers Ret US Mid Cp Eq ETF earns a High Process Pillar rating.

The leading factor in the rating is its parent firm's excellent 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. Excellent risk-adjusted performance also reinforces the process, 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 prefers more value-oriented stocks compared with the average fund in its peer group, the Mid-Cap Blend Morningstar Category. But in terms of size exposure, it does not have much of a bias and resembles the typical portfolio. Looking at additional factor exposure, this strategy has continually underweighted stocks that have a lower standard deviation of returns compared with Morningstar Category peers over the past few years. Such holdings can limit a strategy's downside, but cause it to lag in bull markets. In the latest month, the strategy was also less exposed to the Volatility factor compared with Morningstar Category peers. This strategy's portfolio also has had exposure to more stocks with high dividend or buyback yields over peers in these years. Stocks with high yields can be more stable, mature companies, but at times extreme market pressure or fundamental deterioration may prompt them to cut their dividends, which tends to hurt stock performance. Compared with category peers, the strategy also had more exposure to the Yield factor in the most recent month. In addition, this strategy has constantly held more illiquid stocks, evidenced by holdings' low trading volume, resulting in higher liquidity risk exposure than peers. Less-liquid stocks might offer strong returns to compensate for their risks, but they can be harder and more expensive to trade in bear markets. In recent months, the strategy also had less Liquidity 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 real estate relative to the category average by 6.7 and 5.2 percentage points, respectively. The sectors with low exposure compared to category peers are industrials and technology, underweight the average by 9.4 and 5.7 percentage points of assets, respectively. The portfolio is composed of 364 holdings and is less top-heavy than peers. Specifically, 5.1% of the strategy's assets are concentrated within the top 10 fund holdings, as opposed to the category average's 16.8%. And finally, in terms of portfolio turnover, this portfolio's holdings turn over more often than comparable products in its peer group, possibly resulting in higher costs for investors and a drag on performance.

There are four managers listed on the fund: Yegang(Steven) Wu, Joe Staines, Natalia Zvereva, Yazann Romahi. Together, they manage a total of six 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.

It has been successful over the short term but disappointing over the long term. Over the past five years, the fund performed in line with the category index, the Russell Midcap Index, and surpassed the category's average return by 20 basis points. More importantly, on an eight-year basis, this share class underperformed the index by an annualized 42 basis points.

The share class led the index with a higher Sharpe ratio, a measure of risk-adjusted return, over the trailing five-year period. Notably, these strong risk-adjusted results have not come with more volatility for investors. This strategy took on similar risk as the benchmark, as measured by standard deviation.

This share class is in the cheapest quintile of its Morningstar Category. Its competitive expense ratio, considered jointly with the fund’s People, Process, and Parent Pillars, indicates that this share class can deliver positive alpha against its category benchmark, explaining its Morningstar Medalist Rating of Gold.