JPMorgan Small Cap Equity benefits from a proven team and a disciplined approach.
Veteran managers Don San Jose and Dan Percella lead a small but stable team of three analysts. After joining J.P. Morgan as an analyst in 2000, San Jose became a comanager here in 2007 and took the lead role in 2013, extending this strategy’s outstanding track record. Percella, who served as an analyst on the team since 2008, became a comanager in 2014. Two of the group’s three analysts have worked on the team since 2015, while the third started in 2018. Although the team is small, it’s a plus that they are focused exclusively on small- and mid-cap investing. In addition, they occasionally collaborate with other J.P. Morgan Asset Management analysts for added support.
The team’s consistent investment approach centered on quality is key to its success. It focuses on companies operating in narrow niches that can leverage their competitive positioning to protect and grow their returns on capital at rates higher than the market foresees. These traits, along with a preference for earnings and free cash flow over top-line revenue growth, lead them to steadier business models. The team will ride winners from small- to mid-cap territory, but it will start to sell once they hit the $10 billion market-cap range. Tolerating these stretched valuations courts risk, but the fund maintains a high-quality profile, as indicated by superior profitability metrics such as returns on equity and invested capital.
Under San Jose’s watch, the strategy has an excellent record. From his appointment to comanager in November 2007 through April 2024, the institutional shares’ 9.0% annualized return beat the fund's Russell 2000 Index prospectus benchmark by 2.1 percentage points. The strategy is coming off a challenging year, though, as its 11.9% return in 2023 lagged its benchmark by 5.0 percentage points. Some mistakes with regional banks and poor picks in industrials and healthcare largely drove the underperformance. Still, the strategy remains a great option, despite this recent hiccup.