JPMorgan Active Small Cap Value ETF JPSV

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

The strategy’s management team earns an Above Average People Pillar rating. The strategy's effective investment approach earns an Above Average Process Pillar rating. Liquidity risk is attributed to stocks with a low trading volume, limiting managers' flexibility. And a high quality exposure is rooted in holding stocks with low financial leverage and strong returns on equity. 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 Active Small Cap Value ETF earns an Above Average Process Pillar rating.

The primary contributor to 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. The parent firm's five-year risk-adjusted success ratio of 53% also contributes to the process. The measure indicates the percentage of a firm's funds that survived and beat their respective category's median Morningstar Risk-Adjusted Return for the period. Their compelling success ratio suggests that the firm does well for investors and that this fund may benefit from that. However, the process is limited by being an actively managed strategy. Historical data, like Morningstar's Active/Passive Barometer, finds that actively managed funds have generally underperformed their passive counterparts, especially over longer time horizons.

This strategy owns more growth stocks than its peers in the Small Value 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 consistently held some companies with relatively lower trading volume compared with Morningstar Category peers in the last few years. 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 the latest month, the strategy was also less exposed to the Liquidity factor compared with Morningstar Category peers. This strategy also has had a defensive tilt, with exposure to higher-quality stocks compared with peers in recent years. This means that the fund holds companies that are profitable, growing, and have solid balance sheets. High exposure to the quality factor means holding companies that are consistently profitable, growing, and have solid balance sheets. Compared with category peers, the strategy also had more exposure to the Quality factor in the most recent month. Additionally, this strategy has demonstrated a tilt toward low-volatility stocks in these years, meaning companies with a lower historical standard deviation of returns over its peers. These companies have historically been a valuable ballast to steady portfolio returns during market downturns. In recent months, the strategy also had less Volatility 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 has allocations in its top two sectors, utilities and financial services, that are similar to the category. The sectors with low exposure compared to category peers are consumer cyclical and industrials, with consumer cyclical underweighting the average portfolio by 4.7 percentage points of assets and industrials similar to the average. The portfolio is positioned across 120 holdings and is less top-heavy than peers. Specifically, 14.4% of the portfolio's assets are concentrated within the top 10 fund holdings, as opposed to the category average's 27.9%. And finally, 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.

The team is backed by Lawrence E. Playford, the longest-tenured manager on the strategy, who provides over 25 years of listed portfolio management experience. Lawrence E. Playford has an experienced backdrop of support. The three listed managers boast 14 years of average listed portfolio management experience. As a team, they manage two investment vehicles together, with a Silver asset-weighted average Morningstar Medalist Rating, demonstrating their potential to deliver positive alpha in aggregate. The management team is invested in the fund, but the maximum investment by any manager is between$ 100,000 and$ 500,000. An investment of more than$ 1 million would be ideal to align managers' interests with those of the fund's investors.

Note: The People Pillar rating is indirectly assigned by an analyst. The longest-tenured manager of the fund also manages a different product rated by an analyst. Their analyst-assigned People Pillar rating is combined here with the People scores (algorithmic or analyst-assigned) for the fund’s other managers on a tenure-weighted basis.

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.

Still, with such a short track record, it is too early to draw a conclusion based on performance. In the past twelve months, this share class has returned 19.3%, mirroring the return of the category benchmark, the Russell 2000 Value Index, for the same period. During that time, it outperformed the category average's 17.1% return for the period.

Thus, assessing cost is a critical step in any investment evaluation. This share class sits in the cheapest quintile of its Morningstar Category. Its low fee, paired with the fund’s People, Process, and Parent Pillars, suggests that this share class has high potential to deliver positive alpha against its category benchmark, leading to its Morningstar Medalist Rating of Silver.