JPMorgan BetaBuilders Japan ETF BBJP

The portfolio maintains a cost advantage over competitors, priced within the cheapest 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 liquidity exposure compared with category peers. Low volatility exposure is attributed to stocks with a lower standard deviation of returns. And a low liquidity exposure is rooted in stocks with lower trading volumes, limiting managers' flexibility. 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 BetaBuilders Japan ETF earns a High Process Pillar rating.

The most substantial contributor to the rating is its parent firm's superior 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. The parent firm's five-year risk-adjusted success ratio of 55% supports the rating. The measure indicates the percentage of a firm's funds that survived and surpassed their respective category's median Morningstar Risk-Adjusted Return for the period. Their relatively high success ratio suggests that this firm does well for investors and that this fund may benefit from that.

The investment strategy as stated in the fund's prospectus is:

The investment seeks investment results that closely correspond, before fees and expenses, and to the performance of the Morningstar® Japan Target Market Exposure IndexSM. The fund will invest at least 80% of its assets in securities included in the underlying index. The underlying index is a free float adjusted market capitalization weighted index which consists of stocks traded primarily on the Tokyo Stock Exchange or the Nagoya Stock Exchange. The fund may invest up to 20% of its assets in exchange-traded futures and forward foreign currency contracts to seek performance that corresponds to the underlying index.

The portfolio has allocations in its top two sectors, healthcare and communication services, that are similar to the category. The sectors with low exposure compared to category peers are basic materials and consumer defensive, with basic materials underweighting the average portfolio by 3.4 percentage points of assets and consumer defensive similar to the average. The portfolio is composed of 251 holdings and is relatively concentrated. In particular, 26.1% of the fund’s assets are housed within the top 10 holdings, as opposed to the category’s 21.2% average. 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.

There are four managers listed on the fund: Alex Hamilton, Oliver Furby, Michael Loeffler, Nicholas D’Eramo. Experience on the team is abundant, with 12 years of average portfolio management experience. Together, they manage a total of eight strategies, with a Silver asset-weighted algorithmically-assigned average Morningstar Medalist Rating, indicating the potential 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.

Over the past three-year period, it mirrored the category index, the MSCI Japan Index, but underperformed the category average by 2.4 percentage points. But more significantly, when looking across a longer horizon, the strategy failed to differentiate itself. On a five-year basis, it mirrored the index.

If risk is accounted for, then this strategy is more competitive. The share class led the index with a higher Sharpe ratio, a measure of risk-adjusted return, over the trailing five-year period. These strong risk-adjusted results have not resulted in a bumpier ride for investors. This strategy took on similar risk as the benchmark, as measured by standard deviation. 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.

It is good practice to weigh them heavily in any investment evaluation. This fund lands in the cheapest quintile of its Morningstar Category. Its competitive fee, paired with the fund’s People, Process, and Parent Pillars, suggests that this share class is well-positioned to generate positive alpha compared with the lesser of its median category peer or the category benchmark, explaining its Morningstar Medalist Rating of Gold.