JPMorgan Equity Index A OGEAX

The portfolio maintains a cost advantage over competitors, priced within the second-lowest fee quintile among peers.

The strategy merits a High Process Pillar rating. 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, Process 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.

The profitability screen requires that the sum of a company’s GAAP earnings over the past four quarters be positive as well as the most recent quarter. The screen imparts a slight quality tilt to the portfolio but has a limited impact relative to other large-cap benchmarks since large-cap stocks tend to be profitable. There have been instances where the profitability screen prevented otherwise qualified companies from index inclusion. Most notably, Tesla TSLA was added to the index in December 2020, despite passing the liquidity and market-cap thresholds in January 2013. Once the index committee selects stocks, it weights them by market cap.

Market-cap weighting harnesses the market’s collective wisdom on a stock’s relative value and helps reduce turnover and associated trading costs. The index committee further curbs turnover by implementing changes as it sees fit rather than adhering to a strict reconstitution schedule.

The strategy approximates the contours of the large-cap market. Its sector composition is in line with the Morningstar US Large-Mid Cap Index with no sector deviating by more than 1%, as of December 2023. Its value-growth bias also falls in line with the Morningstar bogy.

Market-cap weighting consistently guides the index into the largest and most established names. As of December 2023, 94% of the strategy’s assets were companies with wide or narrow Morningstar Economic Moat Ratings, showcasing the portfolio’s durability.

This strategy is well-diversified. As of December 2023, its top 10 holdings represented 31% of the portfolio, generally lower than peers. However, the portfolio is more concentrated than usual. For example, recent the outperformance of a few technology companies, such as Apple AAPL, Microsoft MSFT, Amazon.com AMZN, Nvidia NVDA, Alphabet GOOGL, Tesla TSLA, and Meta Platforms META, commonly known as the Magnificent Seven, ballooned the top 10 holdings to 31% of assets at the end of December 2023, which was the highest percentage over the past 35 years. The index may become less concentrated if the market rally broadens.

The portfolio managers reinvest dividends as they are paid and use derivatives to equitize cash to keep pace with the benchmark. They also engage in securities lending to generate additional income, which may partially offset fees. But the income is limited since large-cap stocks are widely available for borrowing and don’t generate much lending revenue.

Note: The Process Pillar rating and analysis are indirectly assigned by an analyst. When an analyst covers a passively managed vehicle that tracks a particular index, Morningstar associates the Process Pillar rating assigned to that vehicle with the index concerned. Morningstar then maps the Process Pillar associated with a given index to any other uncovered passive strategies that track the same index. This ensures that the analyst’s view is leveraged whenever available and promotes consistency when analyzing passive vehicles associated with a given index.

There are three managers listed on the fund: Nicholas D'Eramo, Alex Hamilton, Michael Loeffler. Experience on the team is abundant, with 19 years of average portfolio management experience. Together, they manage a total of five strategies, with a Silver asset-weighted average Morningstar Medalist Rating, indicating the potential to deliver positive alpha relative to the category median in aggregate. The team has faced turnover as of late, with Oliver Furby leaving within the last two months. 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.

J.P. Morgan is a well-resourced, diligent, and responsible steward of client assets. Investment teams are seasoned and stalwart, especially in equity and fixed income, the latter of which has successfully undergone substantial transformation in recent years. The firm offers competitive compensation that is aligned with fundholders and shows strong retention at senior levels of the organization. It demonstrates a culture of constant innovation and willingness to evolve. For example, J.P. Morgan recently expanded its investment committee process through which senior leaders review various teams and strategies, and it continues to develop proprietary portfolio management and risk oversight tools. Some funds still face high fee hurdles, but the firm has generally lowered expenses as it has grown.

The firm isn't without its complications. J.P. Morgan's product offering is extensive, and some areas need improvement. For instance, its multi-asset business has faced some challenges as a result of complex investment processes. The firm continues to build out its footprint in China, but its efforts there remain unproven. Although not every strategy is the best in its class, J.P. Morgan remains earnest in the pursuit of excellence, and investors are well-served.

It has provided better returns compared with peers, but poor returns compared with the category benchmark. This share class led its average peer by an annualized excess return of 1.8 percentage points over a 10-year period. However, it was more difficult to outpace the category index, Russell 1000 Index, where it trailed by an annualized 19 basis points over the same period.

When adjusting for risk, this fund is competitive. The share class had a higher Sharpe ratio, a measure of risk-adjusted return, than the index over the trailing 10-year period. These strong risk-adjusted results have not come with a bumpier ride for investors. This strategy took on similar risk as the benchmark, as measured by standard deviation. However, the share class proved itself ineffective as it was unable to generate alpha, over the same 10-year period, against the category group index: a benchmark that encapsulates the performance of the broader asset class.

This fund is within the second-cheapest quintile of its Morningstar Category. Its affordable expense ratio, in conjunction with the fund’s People, Process, and Parent Pillars, suggests that this share class has the ability to deliver positive alpha against the lesser of its median category peer or the category benchmark, explaining its Morningstar Medalist Rating of Bronze.