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JPMorgan US Quality Factor ETF JQUA

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Morningstar’s Analysis JQUA

Medalist rating as of .

JPMorgan US Quality Factor ETF’s management team is rated Average, but a solid investment process still helps this strategy retain its Morningstar Medalist Rating of Gold.

Our research team assigns Gold ratings to strategies that they have the most conviction will outperform a relevant index, or most peers, over a market cycle on a risk-adjusted basis.

JPMorgan US Quality Factor ETF’s management team is rated Average, but a solid investment process still helps this strategy retain its Morningstar Medalist Rating of Gold.

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Morningstar Manager Research

Summary

The portfolio maintains a 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 an overweight in liquidity exposure and yield exposure compared with category peers. High liquidity exposure is attributed to stocks with a high trading volume, lending managers more flexibility. 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.

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Morningstar's evaluation of this security's process aims to determine the likelihood that it will outperform its Morningstar Category benchmark on a risk-adjusted basis over the long term.

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Morningstar Manager Research

Process

High

JPMorgan US Quality Factor ETF earns a High Process Pillar rating.

The predominant contributor to the rating is that this fund tracks an index. Historical data, such as 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 contributes to 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, contributes to the process as well.

This strategy, over time, has opted for smaller market-cap companies, compared with others in the Large Blend Morningstar Category. But in terms of style (value/growth) exposure, it is similar. Examining additional factor exposure, this fund has constantly tilted toward stocks with higher trading volumes than its Morningstar Category Peers over the past few years. More-liquid assets contribute to more-flexible exit strategies without price changes and tend to be a ballast during market selloffs. For example, if the portfolio faces successive redemptions in a short period of time, it will be less likely to experience a significant loss. In recent months, the strategy was more exposed to the Liquidity factor compared with its Morningstar Category peers as well. This strategy's portfolio also has had exposure to more stocks with high dividend or buyback yields over peers in these years. 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 the most recent month, however, the fund's Yield exposure was in line with the Morningstar Category average. Additionally, the managers have consistently taken on more risk, demonstrated by higher volatility exposure than peers. Such stocks tend to rise faster and fall harder than the broad market. High-volatility exposure contributes to stronger performance during bull markets, but often at the cost of losing more during downturns. In this month, the strategy also had more exposure to the Volatility 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 has allocations in its top two sectors, technology and consumer cyclical, that are similar to the category. The sectors with low exposure compared to category peers are communication services and industrials; however, the allocations are similar to the category. The strategy owns 261 securities and its assets are more dispersed than peers in the category. In particular, 21.1% of the strategy's assets are concentrated in the top 10 fund holdings, as opposed to the category’s 50.1% average. And in closing, in terms of portfolio turnover, this fund trades less frequently than the category’s average, potentially limiting costs to investors.

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JPMorgan’s team is comparable to peers, resulting in an Average People Pillar rating.

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Morningstar Manager Research

People

Average

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 a Gold asset-weighted algorithmically-assigned average Morningstar Medalist Rating, demonstrating their potential to deliver positive alpha relative to the category median in aggregate. The team has lacked continuity recently, with Aijaz Hussain leaving in the last two months, detracting from its rating. Even though it is a passive fund, high turnover can still hinder the effectiveness of the investment process.

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.

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A well-resourced, thoughtful, and disciplined steward of client assets, JPMorgan Asset Management maintains an Above Average Parent rating.

Associate Director Emory Zink

Emory Zink

Associate Director

Parent

Above Average

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.

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This share class has had disparate fortunes, requiring closer analysis.

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Morningstar Manager Research

Performance

Over the past three years, it beat the category index, the Russell 1000 Index, by an annualized 2.1 percentage points, and outperformed its average peer by 3.2 percentage points. Although more importantly, when looking across a longer horizon, the strategy struggled to separate itself from the pack. On a five-year basis, it mirrored the index.

The risk-adjusted performance makes a case for this fund. The share class outstripped the index with a higher Sharpe ratio, a measure of risk-adjusted return, over the trailing five-year period. This strategy had more-consistent returns, as denoted by a lower standard deviation, 17.1%, than the benchmark, 18.6%. Finally, the share class proved itself effective by generating positive alpha, over the same period, against the category group index: a benchmark that encapsulates the performance of the broader asset class.

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It is imperative to evaluate fees, which compound over time and reduce returns.

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Morningstar Manager Research

Price

This share class lands in the cheapest quintile of its Morningstar Category. Its low expense ratio, paired with the fund’s People, Process, and Parent Pillars, indicates that this share class has the ability to deliver positive alpha relative to its category benchmark, explaining its Morningstar Medalist Rating of Gold.

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Portfolio Holdings JQUA

  • Current Portfolio Date
  • Equity Holdings
  • Bond Holdings
  • Other Holdings
  • % Assets in Top 10 Holdings 19.0
Top 10 Holdings
% Portfolio Weight
Market Value USD
Sector

Alphabet Inc Class A

2.07 89.1 Mil
Communication Services

Apple Inc

2.06 88.4 Mil
Technology

Microsoft Corp

2.05 88.2 Mil
Technology

Meta Platforms Inc Class A

2.00 85.7 Mil
Communication Services

Berkshire Hathaway Inc Class B

1.97 84.7 Mil
Financial Services

NVIDIA Corp

1.92 82.4 Mil
Technology

Broadcom Inc

1.90 81.4 Mil
Technology

Exxon Mobil Corp

1.76 75.8 Mil
Energy

Visa Inc Class A

1.72 73.7 Mil
Financial Services

Costco Wholesale Corp

1.57 67.5 Mil
Consumer Defensive