JPMorgan Diversified Return U.S. Equity ETF JPUS avoids concentration and bends toward valuable risk factors, but its unique construction introduces risks that can get in their way. 

The JPMorgan Diversified Factor US Equity Index underpinning this fund targets stocks with the best combination of value, momentum, and quality characteristics. With robust track records of market-beating returns, these risk factors are a worthy pursuit. Measuring stocks’ collective traits rather than building separate sleeves improves factor exposure. Indeed, the fund has effectively channeled the value and quality factors, both of which should enhance returns. Momentum is harder to capture because of inverse-volatility weighting, but it can still filter out risky firms whose prices reflect trouble that their prices don’t.

Diversification across factors and stocks is a priority here. Different risk factors like value and quality tend to excel at different times. The fund’s weighting scheme, which weights sectors by their inverse volatility and stocks near-equally, promotes diversification as well. At the end of November, no sector exceeded consumer staples’ 14% portfolio weighting. The 10 largest holdings constituted 4.6% of the portfolio compared with 17.1% for the Russell 1000 Value Index, its Morningstar Category benchmark. Avoiding concentration should help this fund avoid shocks that hurt only one segment of the market.

This fund’s unique and convoluted construction makes this portfolio look quite different from the category index and broad market. Just 37% of it overlapped with the Russell 1000 Value Index, and just 32% of it with the Russell 1000 Index. Sector biases explain much of the difference. This fund’s utilities, real estate, and consumer staples sectors exceeded the Russell 1000 Value by about 5 percentage points apiece, while it was 12 percentage points underweight in financials. Sector bets do not always work, and they can drown out the effect of factors, which are more reliable performance engines.

That was the case over 2022, a year that should have benefited this inverse-volatility-weighted portfolio and the stability it should confer. Hamstrung by its unfavorable technology and energy allocations, the fund fell 97 basis points further than the Russell 1000 Value Index and ranked within the bottom quartile of large-value peers. The fund’s track record has remained solid since its 2015 inception, but sector risks and complex construction leave doubts over the durability of that strong performance.

Analyst Rating

Held back by avoidable risks.

Analyst

Ryan Jackson

Vistra Energy

Williams-Sonoma

Marathon Petroleum

Bunge

Targa Resources

Southern Copper

Kroger

Progressive

Constellation Energy Corp

This well-diversified strategy sports solid factor tilts, but its unique weighting approach breeds lopsided sector bets that can spark unpredictable performance. It earns an Average Process Pillar rating.

Average

Process

Portfolio managers from J.P. Morgan's quantitative beta solutions team oversee this fund. The team has the tools and experienced personnel necessary to provide tight index tracking, but it does not have the resources of its larger competitors. It earns an Average People Pillar rating.

J.P. Morgan's quant beta solutions team was formed in January 2017, when it took over management of this fund and J.P. Morgan's other strategic-beta exchange-traded funds. Four portfolio managers share responsibility for this portfolio. Yaz Romahi serves as the team's CIO and helped develop the strategy. Natalia Zverva replaced Alistair Lowe on the fund in November 2022. Joe Staines and Steven Wu round out the lineup.

Most of the team's workflow is conducted through Spectrum, J.P. Morgan's in-house portfolio management platform, which automates many aspects of day-to-day workflow. Two risk oversight teams monitor the funds managed by the quant beta solutions team. Both provide tracking-error targets, and tracking performance is formally reported each quarter. The managers' compensation is tied to tracking performance, aligning their interests with investors'.

People

A well-resourced, thoughtful, and disciplined steward of client assets, JPMorgan Asset Management maintains an Above Average Parent rating.
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.

Above Average

Parent

JPMorgan Diversified Return U.S. Equity ETF

JPUS tracks an index of large-cap US stocks selected from the Russell 1000 using relative value, momentum, and quality factors. The fund is weighted for equal risk contribution at the sector level and holdings are equal-weighted within sectors.

Designed to provide broad exposure to the Large Cap Blend segment of the US equity market, the JPMorgan Diversified Return U.S. Equity ETF (JPUS) is a passively managed exchange traded fund launched on 09/29/2015.

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