JPMorgan Climate Change Solutions ETF TEMP

The portfolio maintains a sizable cost advantage over competitors, priced within the lowest 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 liquidity exposure and an underweight in quality exposure compared with category peers. High liquidity exposure is attributed to stocks with a high trading volume, lending managers more flexibility. And a low quality exposure is rooted in stocks with higher financial leverage and lower profitability. The strategy’s management team earns an Above Average People Pillar rating. The strategy's parent organization earns the firm an Above Average Parent Pillar rating. People Pillar 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.

JPMorgan Climate Change Solutions ETF earns an Above Average Process Pillar rating.

The most important driver of the rating is its parent firm's impressive long-term risk-adjusted performance, as shown by the firm's average 10-year Morningstar Rating of 3.3 stars. The parent firm's five-year risk-adjusted success ratio of 53% also strengthens the process. The measure indicates the percentage of a firm's funds that survived and beat their respective category's median Morningstar Risk-Adjusted Return for the period. Their relatively high success ratio suggests that the firm does well for investors and that this fund may benefit from that. However, the process is limited by being an actively managed strategy. Historical data, such as Morningstar's Active/Passive Barometer, finds that actively managed funds have generally underperformed their passive counterparts, especially over longer time horizons.

This strategy tends to hold smaller, more undervalued companies than its average peer in the Global Large-Stock Growth Morningstar Category. Examining additional factor exposure, this strategy has consistently tilted toward companies with relatively higher trading volumes in the last few years. Such stocks may have less potential upside than illiquid holdings, but they are easier to trade during market downturns. In recent months, the strategy was more exposed to the Liquidity factor compared with its Morningstar Category peers as well. This strategy has also favored low-quality stocks. This means the fund avoids holding companies that are consistently profitable, growing, and have solid balance sheets. Lacking this ballast, the fund's prospects could rest on its ability to beat peers during economic booms. Similarly, in recent months, the strategy also had less exposure to the Quality factor than peers. In addition, this strategy has exhibited a tilt toward higher-volatility stocks in these years, meaning companies that have a higher historical standard deviation of returns compared with peers. This orientation tends to pay off most prominently when markets are hot. In this month, the strategy also had more exposure to the Volatility factor over its peers. More information on a fund and its respective category's factor exposure can be found in the Factor Profile module within the Portfolio section.

The portfolio is overweight in industrials and utilities relative to the category average by 53.9 and 12.8 percentage points, respectively. The sectors with low exposure compared to category peers are technology and healthcare, underweight the average by 17.4 and 14.0 percentage points of assets, respectively. The portfolio is composed of 71 holdings and is relatively top-heavy. Of the strategy's assets, 37.3% are concentrated within the top 10 holdings, compared to the typical peer's 33.0%. And finally, in terms of portfolio turnover, this fund trades more frequently than its average peer, potentially racking up additional expenses for investors and creating a drag on performance.

Yazann Romahi, the longest-tenured manager on the strategy, provides strong guidance, bringing forward 15 years of listed portfolio management experience. Yazann Romahi draws on two other listed supporting managers. Together, they have seven years of average listed portfolio management experience. As a team, they manage five investment vehicles together, with solid long-term prospects. The strategies average a Silver asset-weighted average Morningstar Medalist Rating, indicating a position to deliver positive alpha in aggregate. The team has struggled to retain portfolio-management talent, detracting from its rating. The most recent documented departure was two months ago. High team turnover can hinder the effectiveness of a strategy's investment process. None of the managers here invest any money in the strategy, which is disappointing, as such investments help align managers' interests with fundholders.

Note: The People Pillar rating is indirectly assigned by an analyst. The longest-tenured manager of the fund also manages a different product rated by an analyst. Their analyst-assigned People Pillar rating is combined here with the People scores (algorithmic or analyst-assigned) for the fund’s other managers on a tenure-weighted basis.

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.

That said, a relatively short track record may not be an accurate reflection of its future prospects. Over the past two years, this share class has returned 15.6%, compared with the 21.7% return of the category index, the MSCI ACWI Growth Index, for the same period. It also lagged peers as the category’s average return for the period was 17.5%. The share class trailed the index with a lower Sharpe ratio, a measure of risk-adjusted returns, over the trailing one-year period.

Thus, assessing cost is a critical step in any investment evaluation. This share class is within the cheapest quintile of its Morningstar Category. Its affordable fee, taken together with the fund’s People, Process, and Parent Pillars, suggests that this share class is well-positioned to generate positive alpha compared with its category benchmark, explaining its Morningstar Medalist Rating of Silver.