JPMorgan BetaBuilders MSCI US REIT ETF BBRE

The portfolio maintains a sizable cost advantage over competitors, priced within the least expensive fee quintile among peers.

The strategy's effective investment philosophy supports a High Process Pillar rating. Independent of the rating, analysis of the strategy's portfolio shows it has maintained a significant overweight position in yield exposure and liquidity exposure compared with category peers. High yield exposure is attributed to holding more stocks with high dividend or buyback yields. And a high liquidity exposure is rooted in stocks with higher trading volumes, lending managers more flexibility. 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 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 BetaBuilders MSCI US REIT ETF earns a High Process Pillar rating.

The most meaningful contributor to the rating is that this fund tracks an index. Historical data, like Morningstar's Active/Passive Barometer, finds that passively managed funds have generally outperformed their active counterparts, especially over longer time horizons. The parent firm's impressive risk-adjusted performance, as shown by its average 10-year Morningstar Rating of 3.3 stars, also contributes to the process. Impressive risk-adjusted performance also supports the rating, as shown by the fund's five-year alpha calculated relative to the category index, which suggests the process was successful over that period.

The investment strategy as stated in the fund's prospectus is:

The investment seeks investment results that closely correspond, before fees and expenses, and to the performance of the MSCI U.S. REIT Custom Capped Index. The fund will invest at least 80% of its assets in securities included in the underlying index. The underlying index is a free-float adjusted market-cap weighted index designed to measure the performance of U.S. equity real estate investment trust ("REIT") securities. The fund may invest up to 20% of its assets in exchange-traded futures to seek performance that corresponds to the underlying index.

The portfolio is overweight in real estate by 2.7 percentage points in terms of assets compared with the category average, and its consumer defensive allocation is similar to the category. The sectors with low exposure compared to category peers are consumer cyclical and financial services; however, the allocations are similar to the category. The portfolio is composed of 122 holdings and its assets are more dispersed than the typical peer in the category. In the most recent disclosure, 47.9% of the strategy's assets were concentrated in the top 10 fund holdings, compared to the category average's 65.0%. And finally, in terms of portfolio turnover, this portfolio turns over its holdings less quickly than peers, potentially leading to lower costs for investors and eliminating a drag on performance.

There are three managers listed on the fund: Alex Hamilton, Nicholas D’Eramo, Michael Loeffler. The team is well equipped, with an average of 14 years of portfolio management experience. Together, they manage a total of eight strategies, with a Silver asset-weighted average Morningstar Medalist Rating, demonstrating their potential to deliver positive alpha relative to the category median in aggregate. The team has lacked continuity recently, with Oliver Furby leaving in the last two months, detracting from its rating. 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.

Narrowing in on the past three-year period, it trailed the category index, the S&P United States REIT Index, by an annualized 19 basis points, but outperformed the category average by 2.2 percentage points. And more importantly, when looking across a longer horizon, the strategy struggled to separate itself from the pack. On a five-year basis, it matched the index.

When risk is properly accounted for, the strategy is less compelling. The share class had a lower Sharpe ratio, a measure of risk-adjusted returns, than the index over the trailing five-year period. This subpar risk-adjusted performance has not resulted in higher volatility, as measured by their standard deviation, which is close to the benchmark. Finally, the share class proved itself ineffective as it was unable to generate alpha, over the same period, against the category group index: a benchmark that encapsulates the performance of the broader asset class.

This fund lands in the cheapest quintile of its Morningstar Category. Its affordable fee, paired with the fund’s People, Process, and Parent Pillars, suggests that this share class has the ability to deliver positive alpha versus the lesser of its median category peer or the category benchmark, leading to its Morningstar Medalist Rating of Silver.