JPMorgan Global Allocation R6 GAOZX

JPMorgan Global Allocation continues to benefit from experienced team members who have the breadth and depth of resources to execute the complex strategy well.

Lead portfolio manager Jeff Geller has managed this strategy since its 2011 inception. He’s joined by comanagers Michael Feser and Philip Camporeale, who bring fixed-income backgrounds, and Eric Bernbaum and Grace Koo, who assist in portfolio construction and quantitative research, respectively. As the CIO of JPMorgan’s multi-asset group, Geller is well-placed to marshal the resources required to run this multilayered strategy. These include the firm’s macroeconomic research groups, risk analysts, and quantitative team, as well as the underlying subasset sleeves that are managed by well-resourced specialist groups from across the firm.

At the end of April 2024, the fund used 11 distinct sleeves, including a recently added high-yield bond portfolio. As the firm’s recession fears faded, starting in mid-2023, Geller and team began moving decisively into lower-rated credit holdings; high-yield bonds comprised about a fourth of the portfolio as of April 2024, compared with zero a year prior. The team also manifests its more optimistic economic outlook with a slightly overweight equity position: Stocks accounted for 64% of the portfolio, compared with its strategic target of 60% stocks and 40% bonds.

Making consistently additive tactical asset-allocation decisions is notoriously difficult, and this team has many decisions to make. In addition to credit and asset classes, the team has flexibility across currencies, regions, and duration. Over Geller’s tenure, though, he has shown the ability to be right more often than not. From June 2011 to May 2024, the fund’s institutional share class outpaced its custom 60/40 MSCI ACWI/ Bloomberg Global Aggregate custom index in 65% of three-year rolling periods, gaining an annualized 5.7% compared with the custom index’s 5.4%. Its risk, as measured by standard deviation, has only been marginally greater during that time, resulting in risk-adjusted returns that stay ahead of the index’s. While the team has misread market signals in the past—its 18.6% loss in 2022 was 125 basis points greater than the index’s—over longer term, this strategy has delivered strong outcomes for its investors.

JPMorgan Global Allocation aims to outstep the returns of a 60% MSCI All Country World Index/40% Bloomberg Global Aggregate Bond Index custom benchmark with lower volatility. To do so, it exercises flexibility across currencies, regions (keeping a minimum of 30% in non-US exposures), asset classes (moving between 10% and 90% in either equities or bonds and a maximum of 60% in alternatives), and credit qualities (investing no more than 70% in junk bonds). Duration is unconstrained, and the team may hold up to 80% of the portfolio in cash.

As a starting point, the strategy’s portfolio managers consider the firm’s broad intermediate-term market views (six to 18 months) and negotiate the resulting themes with the output of the multi-asset group's proprietary models. From there, the decision-makers revisit the portfolio's broad contours and, depending on their perception of relative value across global markets, may make adjustments to the underlying sleeves (there were 11 as of April 2024, and each represented a stylistic approach to a subasset class managed by one of the firm's well-resourced specialist groups). Depending on the overall desired profile, Geller and his colleagues will hold single securities or derivatives (futures, forwards, puts, calls, and total-return swaps) to curate the final portfolio’s characteristics.

This is a flexible portfolio with a global focus. Since its 2011 inception, the strategy's equity exposure has ranged from roughly 34% to 75%, and as of April 2024, it had ticked up to 64%, from 61% the year prior. Within equities, US, developed international, and emerging markets represented 40%, 17%, and 7% of assets, respectively. At the end of 2020, the team introduced a dedicated China A-shares sleeve to the portfolio, citing the country’s higher growth potential relative to other regions of the world; this position never exceeded low-single-digit allocations and was removed entirely by mid-2023 given the firm’s newly cautious stance on the country’s economic prospects.

As the firm’s recession fears have faded, in addition to an overweight equity exposure, the team has also looked toward credit as a means to benefit from what the firm expects to be generally resilient economic growth. A newly added high-yield bond sleeve took up 24% of assets at the end of April 2024, up from zero the year prior. That puts the portfolio closer to its typical global allocation Morningstar Category average, which stands at about 30% in unrated bonds and bonds rated BB or lower. The fund’s 2.5-year duration is now more in line with the index’s and down from its recent high of almost 4.5 years in August 2023, commensurate with the team’s more optimistic outlook.

Jeff Geller, lead portfolio manager and CIO of the firm's multi-asset group, has helmed this strategy since its 2011 inception. His current comanagers include Grace Koo, who focuses on quantitative approaches to asset allocation, and Eric Bernbaum, who is in charge of portfolio construction and implementation; both joined this strategy in February and December, respectively, of 2014. That trio overlapped with James Elliot, who comanaged here beginning at inception and influenced tactical positioning within the portfolio before his March 2018 departure. Questions followed Elliot's exit around whether the team had the right mix of inputs to execute on its flexible mandate, and in November 2020, two new comanagers expanded the lineup. Michael Feser provides perspectives on risk management and capital market assumptions. Philip Camporeale brings insight around global monetary policies and fixed income to the group.

Geller and his four comanagers determine the asset allocation and curate the portfolio characteristics, but the underlying subasset sleeves are managed by well-resourced specialist groups from across the firm. As of April 2024, the fund invested in a total of 11 distinct sleeves, each led by a reputable sector specialist or two with access to dozens of security analysts, risk specialists, and traders within their cohort.

As of 2022, this investment stalwart manages more than USD 2.5 trillion in AUM. Composed of various global cohorts and diverse asset classes, the firm has more tightly integrated its capabilities in recent years, notably through the development of proprietary analytical and risk systems. Investment teams are robustly staffed and helmed by seasoned contributors. The firm’s strategies tend to produce reliable portfolios, and several flagship offerings are Morningstar Medalists. Manager incentives align with fundholders'; compensation reflects longer-term performance factors, and portfolio managers invest in the firm’s strategies as part of their compensation plans.

The firm’s funds tend to be well-priced, but they aren’t as competitive as many highly regarded peers of similar scale. Recent product launches include thematic and single-country strategies, both of which carry the potential for volatile performance and flows, along with misuse by investors. The firm remains intrepid when it comes to developing an environmental, social, and governance-focused framework and continues to move into other areas such as direct indexing through its 55iP acquisition and China through its joint venture, but these complicated initiatives take time to assess any real and lasting effect.

It was about even with the Morningstar Global Allocation Index category benchmark’s 5.8% gain over that period. The strategy's volatility was modestly higher than all three of those comparators.

Recent periods have been challenging. In 2021, this portfolio’s exposure to emerging-markets equities and global government bonds placed it at a disadvantage relative to many peers with higher allocations to the soaring returns of US equity markets that year. An aggressive series of central bank interest-rate hikes pressured most asset classes in 2022, and this portfolio was not immune, with non-US exposures a particular drag on performance relative to peers.

The strategy has navigated many tough investment periods well, though. In 2020, including the pandemic-driven selloff, the team deftly managed around shifting market conditions, resulting in a 15.6% return for the institutional shares that was nearly triple its category’s return and outpaced its benchmarks. And while its cautious stance hindered results for much of 2023, the team’s repositioning to a more positive outlook has helped it turn in better results so far in 2024.

Based on our assessment of the fund’s People, Process, and Parent Pillars in the context of these expenses, we think this share class will be able to deliver positive alpha relative to the category benchmark index, explaining its Morningstar Medalist Rating of Silver.