JPMorgan SmartRetirement® Income R5 JSIIX

JPMorgan SmartRetirement target-date series’ strong team and thorough research process inspire confidence.

A bevy of veteran investors support this series, most notably lead manager Dan Oldroyd. He served as deputy to former lead skipper Anne Lester from 2010 through May 2020 and has since taken over the retirement research effort that she led. The team has lost resources within that cohort—not only Lester, but two other key contributors in 2022 and 2023. However, Oldroyd is still backed by experienced personnel in retirement research, as well as two other areas of focus—tactical allocation and manager selection. The team also brought in Ove Fladberg and Anshul Mohan, veteran multiasset portfolio managers, to assist its efforts. Michael Conrath, who led the firm's 529 plan group for more than a decade, took over as chief retirement strategist in 2023.

The team’s retirement research process uses participant data from Chase Bank, as well as the Employee Benefit Research Institute, to help formulate its glide path. That led to the development of its SmartSpending program, woven into this series in 2021-22. The firm devised SmartSpending to help investors fund discretionary spending throughout retirement. The program is geared for the investor to sell off shares annually. This approach requires active involvement from retirement plan participants to draw down their savings. One operational change will be implemented in November—each fund in the series will now merge into the Income fund several years after the target date—but participants can still get targeted annual spend-down advice through the firm’s online tools.

Tactical allocation calls were once a positive here, but they have generally detracted value since 2018. At times, the series has been too conservative, missing out on equity rallies such as the one in 2023. But it was also overweight stocks coming into 2022, when stocks declined. The team did add value in 2020's up-and-down market. But the team’s recent decisions to extend the time horizon of its calls and limit both the size and scope of its moves are prudent.

The series continues to earn a Process rating of Above Average.

The 2021-22 incorporation of SmartSpending into the glide path marked the most significant adjustment to this series since its 2006 inception, and the team has a history of thoughtful, smaller changes. Such adjustments are rooted in the pioneering participant research the team has conducted all along. The team's crucial partnerships with outside parties such as Chase retail bank have spurred insights into participant behavior, including its finding that retirees' spending is most volatile during the early years and tapers off later on. The target-date franchise adapted its postretirement allocations to account for this insight in 2021-22, aiming to fund investors' withdrawals until age 100.

The team previously had a long history of making savvy tactical-allocation calls, but they have generally detracted value since 2018. At times, the series has missed out on equity rebounds by being too conservative, as in the first half of 2023. But it was also overweight stocks coming into 2022, which hurt in the early stages of the bear market. The team did add value in 2020’s up-and-down market, but it’s for the best that it has recently limited its tactical calls to broad asset classes and made smaller shifts.

This series' glide path looks a bit different from the industry average. In 2021, lead manager Dan Oldroyd found that suppressed wage growth and increased spending rates had depressed retirement savings, which led him to boost strategic equity exposure by 3 percentage points to 94% of assets for young investors. The glide path’s landing point also rose by 7.5 percentage points to 40% in stocks, modestly flattening the glide path overall. The series recently trimmed equities by 2 percentage points for investors in the portfolios dated 2035 or later because of recent findings that investors don’t need to take quite as much risk to reach their goals. But the series is still generally overweight equities compared with its typical peer from inception until 10 years before retirement by as much as 5 percentage points. However, at retirement, it is underweight stocks by 4 percentage points to reduce risk. Because the weighting then stays at 40%, the series is once again a bit heavier in equity by 10 years after retirement.

The team seeks to add additional value through careful manager selection and a tactical-allocation process. With about USD 100 billion in assets, the target-date franchise isn't as nimble as it once was, which could limit the team’s ability to implement its tactical views. That said, the team has lately focused almost entirely on asset-class shifts, eschewing sector-based and regional tilts that can require more capacity

The team uses roughly 20 underlying strategies in the SmartRetirement series, including two small-cap stock portfolios and two emerging-markets equity funds because the team wants to smooth returns in volatile areas.

Dan Oldroyd took the reins of the team in mid-2020 when longtime lead manager Anne Lester retired. Oldroyd had served as Lester's comanager nearly since the series' 2006 and has veteran colleagues to rely on for retirement research, tactical-allocation calls, and manager selection.

The team has seen both key departures and additions in recent years. Two portfolio managers moved to the firm's target-risk group in 2019, and two key contributors to retirement research group, Katherine Roy and Kelly Hahn, left in 2022 and 2023, respectively. That said, Ove Fladberg and Anshul Mohan, veterans of the firm's target-risk group, joined as portfolio managers in 2022 and 2023, and Michael Conrath, previously the head of the firm's 529 plan group, joined the team in February 2023 to fill Roy's role.

Oldroyd and comanager Silvia Trillo also reap the benefits of J.P. Morgan's standout multi-asset solutions group, which numbers more than 100, and J.P. Morgan's wide array of building blocks. The team can choose from more than 100 mutual funds and exchange-traded funds. Fairly strong funds fill the resulting lineup: As of September 2024, 21 of the 23 earned higher-conviction Morningstar Medalist Ratings.

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.

This target-date series has bounced back of late. For the 12 months ended Aug. 31, 2024, the portfolios’ I shares, on average, beat more than 75% of their Morningstar Category peers as well as their category benchmarks. That fine showing followed an extended stretch (2018 through 2023, with the exception of 2020) in which off-the-mark tactical calls by the team weighed on returns; the series finished in the middle of the pack over the trailing five and 10 years. In the one-year period, tactical calls were again off, but to a much smaller degree as the team made more modest shifts and limited the scope of those moves to stocks versus bonds decisions. And those missteps were outweighed by strong security selection at the underlying holdings, most notably J.P. Morgan’s US large-cap equity funds.

The team’s tactical calls, and the series’ overall performance, were largely successful before the fallow period. Tactical shifts added value virtually every year from the series’ 2006 launch through 2017. That’s one reason the series beat its typical peer and category benchmarks on total and risk-adjusted returns over the past 15 years. Manager selection and strategic allocation changes also proved modestly beneficial.

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 Bronze.