Experienced and capable managers who effectively exploit their deep bench of analysts make this an appealing strategy. Their sensible and well-structured approach combined with the manager’s stock-picking talent has led to an upgrade of the Process Pillar to Above Average from Average. The People Pillar's Above Average rating remained unchanged.
Susan Bao has managed this strategy since inception in 2005. She’s a J.P. Morgan veteran who joined in 1997 as an analyst and earned her spurs as a portfolio manager when teaming up with her mentor, Tom Luddy. The duo first ran a sleeve of long-only strategy JPMorgan US Equity since 2001 and managed together this 130/30 strategy since its launch. Luddy stepped down from portfolio management at the end of 2017. Bao retained a smaller sleeve on the long-only fund to ultimately hand it over to Scott Davis as the multisleeve approach was abandoned in 2020.
On this strategy, Luddy was succeeded by Steven Lee, who manages JPMorgan Research Market Neutral, the firm's long-short strategy, which serves as the blueprint for this strategy’s 30/30 extension. The managers have been effectively collaborating since 2018 and demonstrated their ability to generate alpha from both long and short ideas provided by the analyst team. While turnover remains a watch point, this sizable career analyst team has been instrumental to the strategy’s success and gives it ample resources to conduct in-depth fundamental research.
The strategy looks sensible and is designed to fully exploit the analyst recommendations by taking long positions in top-ranked companies while shorting stocks disliked by the analysts. Classic fundamental bottom-up research should give the fund an informational advantage, where the managers implement long and shorts through pair trades but can also apply a thematic view to generate trade ideas. Short exposure generally stands at 20%-30%, with the portfolio's net exposure to the market kept at 100%. Although the managers have intentionally increased the portfolio’s concentration a bit since mid-2021, it remains a well-diversified and benchmark-aware portfolio, but the managers have demonstrated their ability to generate alpha through both long and short ideas generated by the analyst team.
The strategy’s performance since inception, which still has some relevance given Bao’s involvement, has been outstanding, beating the Morningstar Category average and the Morningstar US LM NR USD category index over various time horizons. Since Lee’s arrival, performance has also been strong, beating both yardsticks and with solid contributions from both long and short positions, particularly in 2020, 2021, and 2023.