The JPMorgan US Select Equity strategy (which includes the U.S. mutual fund and the U.K. and Luxembourg vehicles) remains a good option in a competitive category outside of a handful of share classes that levy high fees.
Beating a U.S. large-cap index is a tough task, but this offering has been up to the challenge thanks to a sensible design that addresses a pair of challenges. As the large-cap universe has become more concentrated, the decision to not own certain stocks has become more impactful. Additionally, as recent years have reaffirmed, it can be difficult to accurately predict the trajectory of macroeconomic events (or public health crises). Rather than hugging the benchmark to minimize these risks—and thereby reducing the chance to outperform net of fees—this strategy mitigates them while still maintaining a differentiated portfolio. To accomplish this, the team considers underlying factors and correlations that drive the strategy's performance relative to the benchmark. For instance, while the U.S. mutual fund's portfolio had little energy exposure for much of 2020 and 2021, manager Scott Davis held companies with correlations to the sector in Deere DE, a provider of agricultural equipment, and defense company Northrop Grumman NOC, which carried better analyst ratings than energy stocks. Both performed well during 2022, a year when the energy sector soared.
The game plan employed here can be challenging to execute, but results are encouraging. Despite a more concentrated portfolio than its previous multimanager incarnation (which ended in February 2020 for the U.S. mutual fund), the performance profile (as measured by tracking error) has remained relatively similar, while alpha has increased—evidence of the investment process' efficacy.
J.P. Morgan's talented team of 20-plus analysts has delivered for this offering and others. That group contains many tenured analysts who’ve been at the firm for a decade or more, along with a mix of newer analysts who've filled in for the occasional departure or reassignment. The firm tends to hire strong replacements when openings emerge. Davis and comanager Shilpee Raina work closely with the team to pick stocks with a combination of high risk-adjusted upside, portfolio fit, and targeted risk exposure.
Overall, while operating in a highly efficient market segment will always be a steep hill to scale, this offering has a better shot than most to deliver.