JPMorgan Divers Ret US Small Cap Eq ETF earns a High Process Pillar rating.
The leading factor in 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. Impressive risk-adjusted performance also supports the process. This can be seen in 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. The parent firm's excellent risk-adjusted performance, as shown by its average 10-year Morningstar Rating of 3.3 stars, influences the rating as well.
This strategy skews toward smaller, more value-oriented companies compared with its average peer in the Small Blend Morningstar Category. Examining additional factor exposure, this strategy has consistently overweighted the volatility factor compared with Morningstar Category peers over the last few years, meaning it invests in stocks with a history of the higher standard deviation of returns. This is a higher-risk, higher-reward approach. In recent months, the strategy was more exposed to the Volatility factor compared with its Morningstar Category peers as well. This strategy has also taken a contrarian approach with lower exposure to momentum stocks over peers in recent years. Momentum investors tend to expect stocks that have done well recently to continue to do so in the short term. Momentum approaches can entail higher turnover and trading costs since the top stocks can often change. Similarly, in recent months, the strategy also had less exposure to the Momentum factor than peers. Additionally, the managers have tended to overweight yield, shown by the portfolio's high exposure to stocks paying dividends or buying back shares. High-yield stocks tend to be associated with more mature, profitable businesses that can grow as well as provide a stream of income. Such stocks could suffer, however, if setbacks force them to cut their dividends. In this month, the strategy also had more exposure to the Yield factor over 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 real estate and basic materials relative to the category average by 8.6 and 3.7 percentage points, respectively. The sectors with low exposure compared to category peers are industrials and financial services, underweight the average by 6.6 and 4.4 percentage points of assets, respectively. The portfolio is positioned across 559 holdings and is less top-heavy than peers. Specifically, 4.3% of the fund’s assets are concentrated within the top 10 fund holdings, compared to the category’s 24.9% average. And in closing, in terms of portfolio turnover, this portfolio turns over its holdings less quickly than peers, potentially leading to lower costs for investors and eliminating a drag on performance.