JPMorgan SMID Cap Equity benefits from a proven team and a disciplined approach, making it an attractive option.
Veteran managers Don San Jose and Dan Percella lead a small but stable team of three analysts. They have managed this strategy since April 2016 in separate accounts but inherited this mutual fund offering in November 2020. The managers know each other well, having worked together on sibling strategy JPMorgan Small Cap Equity VSEIX since 2008. 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 they will start to sell them once they hit the $20 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.
The strategy’s long-term record is solid, despite a recent rough patch. From the separate account’s inception in April 2016 through March 2024, the composite’s 12.2% annualized return (gross of fees) beat the Russell 2500 Index by 1.3 percentage points. Recently though, performance has been more challenged. Since the start of 2023 through March 2024, the strategy’s 21.9% cumulative return trailed its benchmark by 3.6 percentage points. Some mistakes with regional banks and poor picks in industrials and consumer discretionary largely drove the underperformance. Still, the strategy remains a great option, despite this recent hiccup.