JPMorgan Municipal ETF JMUB

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 an Above Average Process Pillar rating. Independent of the rating, analysis of the strategy's portfolio shows it has maintained a significant overweight position in cash and debt with 10- to 15-year maturities compared with category peers. The management team's large personal investment in the strategy helps it earn an Above Average People Pillar rating. The strategy's parent organization earns the firm an Above Average Parent Pillar rating, and this rating is inherited from vehicles belonging to the same branding entity and is indirectly assigned by an analyst.

JPMorgan Municipal ETF earns an Above Average Process Pillar rating.

The predominant 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. Excellent risk-adjusted performance also supports the rating. 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. Lastly, the process is limited by the number of months that the management team has been running this vehicle together.

Compared with other funds in the Muni National Interm Morningstar Category, this fund has been consistently sensitive to interest-rate changes over the past few years. Opening the analysis to additional factors, the portfolio has displayed biases over time, whether towards or away from certain fixed-income instruments. Compared with the average strategy in the category, the managers have been significantly overweight cash in recent years. In the latest month, the strategy has relatively overweighted cash compared with its peers as well. Additionally, there's been a bias towards debt with 10- to 15-year maturities over the past few years. Compared with category peers, the strategy had more exposure to debt with 10- to 15-year maturities in the most recent month. Finally, during the past few years, the fund leaned towards AA rated bonds. In this month, the strategy also leaned more towards AA rated bonds compared with its peers.

This strategy's 12-month yield is 3.4%, higher than its average peer's 2.9%. It also has a 3.7% 30-day SEC yield (a standardized, point-in-time estimate of the fund’s future income return). Typically, higher yields come at the cost of higher credit risk. But that isn't always the case. Over the past 12 months, the average yield of the fund has been higher than the average yield of its Morningstar Category peers. The portfolio's average surveyed credit quality is on par with peers, with both the fund and the average being rated A.

The largest contributor to the rating is its parent firm's five-year success ratio of 55%. The measure indicates the percentage of a firm's funds that survived and outperformed their respective category's median return for the period. Management team experience, which averages 10 years at this fund, also bolsters the rating. Lastly, the rating is limited by the instability of its management team. The fund last saw a manager change three months ago, which suggests that it could do more to retain its portfolio managers.

The highest personal investment in the fund by any of its managers is between $100,000 and $500,000. That's on the low side--it would need to be more than $1 million for us to see the investment as sufficient to promote the strong alignment of their interests with the strategy's investors.

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 years, it beat the category index, the Bloomberg Barclays Municipal 1-15 Year Bond Index, by an annualized 31 basis points, and outperformed the category average by 67 basis points. And more importantly, when looking across a longer horizon, the strategy outpaced the index. On a five-year basis, it led the index by an annualized 44 basis points.

The risk-adjusted performance only continues to make 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. 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.

This share class is in the cheapest quintile of its Morningstar Category. Its competitive expense ratio, taken together with the fund’s People, Process, and Parent Pillars, suggests that this share class is well-positioned to generate positive alpha versus its category benchmark, leading to its Morningstar Medalist Rating of Silver.