JPMorgan US Quality Factor ETF’s management team is rated Average, but a solid investment process still helps this strategy retain its Morningstar Medalist Rating of Gold. The portfolio maintains a cost advantage over competitors, priced within the least expensive fee quintile among peers.  

 The strategy's sensible investment philosophy merits a High Process Pillar rating. Independent of the rating, analysis of the strategy's portfolio shows it has maintained an overweight in liquidity exposure and yield exposure compared with category peers. High liquidity exposure is attributed to stocks with a high trading volume, lending managers more flexibility. And a high yield exposure is rooted in holding high dividend-paying or buyback stocks. 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.

Analyst Rating

Alphabet

Microsoft

NVIDIA

Berkshire Hathaway Inc. - Ordinary Shares - Class B

Apple

Visa

Broadcom

Mastercard

Johnson & Johnson

Morningstar's evaluation of this security's process aims to determine the likelihood that it will outperform its Morningstar Category index on a risk-adjusted basis over the long term. JPMorgan US Quality Factor 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. Excellent risk-adjusted performance also bolsters the process. This can be seen in the fund's five-year alpha calculated relative to the category index, which suggests that the managers have shown skill in their allocation of risk. The parent firm's five-year risk-adjusted success ratio of 57% supports the rating. The measure indicates the percentage of a firm's funds that survived and beat their respective category's median Morningstar Risk-Adjusted Return for the period. Their compelling success ratio suggests that this firm does well for investors and that this fund may benefit from that.

 This strategy, over time, has preferred smaller market-cap companies, compared with others in the Large Blend Morningstar Category.  But in terms of investment style, it is on par with peers. Examining additional factor exposure, this strategy has held more highly liquid stocks compared to Morningstar Category Peers in the past few years. This gives the managers more flexibility during bear markets to sell without adversely affecting prices. In recent months, the strategy was more exposed to the Liquidity factor compared with its Morningstar Category peers as well. This strategy has also displayed a tendency to hold more companies with high dividend or buyback yields than peers over recent years. High-yield stocks tend to be connected to more mature companies earning enough cash to return some to shareholders. At times, however, extreme market pressure can force them to cut their dividends, which hurts stock performance. Compared with category peers, the strategy also had more exposure to the Yield factor in the most recent month. In addition, this strategy has exhibited a tilt toward higher-volatility stocks in these years, meaning companies that have a higher historical standard deviation of returns compared with peers. Such exposure tends to pay off when markets are hot and to be costly when they are not. In this month, the strategy also had more exposure to the Volatility factor over its peers. More information on a fund and its respective category's factor exposure can be found in the Factor Profile module within the Portfolio section. 

 The portfolio is overweight in technology by 3.2 percentage points in terms of assets compared with the category average, and its consumer cyclical allocation is similar to the category. The sectors with low exposure compared to category peers are industrials and communication services; however, the allocations are similar to the category. The portfolio is composed of 248 holdings and its assets are more dispersed than peers in the category. In particular, 21.5% of the fund’s assets are concentrated in the top 10 fund holdings, as opposed to the typical peer's 48.8%. And finally, in terms of portfolio turnover, looking at year-over-year movements, 21% of the fund's holdings have turned over, whether through increasing, decreasing, or changing a position.

High

Process

JPMorgan’s team is valuable but does not stand out as one of the industry's best, warranting an Average People Pillar rating. There’s a deep bench of five managers listed on the fund. Together, they manage a total of two strategies, with a Gold asset-weighted average Morningstar Medalist Rating, demonstrating their potential to deliver positive alpha relative to the category median in aggregate.  

 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.

Average

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 U.S. Quality Factor ETF

JQUA selects companies from the Russell 1000 using three quality factors: profitability, earnings, and solvency.

JPMorgan U.S. Quality Factor ETF is a rules-based investment vehicle that tracks the JP Morgan US Quality Factor Index. The fund has shown consistent growth since its inception and has a low expense ratio of 0.12%. The portfolio includes high-quality stocks across various sectors, but there is a potential risk of overvaluation and over-concentration in the technology sector.

JQUA: Quality Defined

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JQUA's AUM has increased 63% since my initial review four months ago. Investors are appreciating its low 0.12% expense ratio, high quality focus, and low reliance on Magnificent Seven stocks.

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After the market euphoria seen in 2023 where the S&P 500 index has gained nearly 19%, it is important to add some quality to your portfolio. This is possible through JQUA, an ETF that aims to provide investors with exposure to high-quality companies in the U.S. The differences in the composition and performance of JQUA and SPY further justify opting for the JPMorgan ETF.

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As a quality-centered play tracking the worthiest Russell 1000 constituents, JQUA scores excellently against profitability and capital efficiency indicators. There is even a growth ingredient, with the weighted-average EPS and revenue growth rates both bolstered by the software and computer services sector. But meaningful exposure to value is what is missing in the JQUA portfolio. This is the primary reason for a hold rating.

JQUA: Meaningful Exposure To Value Is Missing

Quality stocks possess a sustainable competitive advantage and demonstrate consistent growth, profitability and operational excellence over time.

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JQUA is a quality-focused large-cap blend ETF that selects constituents primarily from the Russell 1000 Index. Expenses are low at 0.12%, and the ETF has over $2 billion in assets. In a 60-ETF sample, JQUA ranked ninth-best in total returns between 2018-2023, making it one of the better quality ETFs on the market. Performance in down years was relatively strong. JQUA is unique because it improves its benchmark's fundamentals without sacrificing diversification. JQUA has 38% of assets in its top 25 holdings compared to 50-80% for its peers.

JQUA: A Quality ETF Outperforming For The Right Reasons

The JPMorgan U.S. Quality Factor ETF has a Gold Star rating and focuses on high-quality and profitable companies. It is a simple low-cost that has mass appeal. However, JQUA's focus on quality without consideration for valuation may cause it to buy overvalued companies. Furthermore, the Quality factor may go through long stretches of underperformance.

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JPMorgan U.S. Quality Factor ETF invests in Russell 1000 stocks selected for profitability, earnings quality, and solvency. It is overweight in information technology.

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QUAL is the iShares MSCI USA Quality Factor ETF which invests based on the MSCI USA Sector Neutral Quality Index. It was formed in mid-2013. JQUA is the JPMorgan U.S. Quality Factor ETF which invests based on an in-house index: JP Morgan US Quality Factor Index. It was formed in late 2017.

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After a monster rally, Wall Street seems to be losing steam on fading euphoria on vaccine rollout. Is this the time to be cautious and bet on quality ETFs?

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Quality ETFs could enjoy smooth trading and generate market-beating returns in the current market environment.

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Exchange traded fund investors should consider the benefits of the quality factor and how a quality investment strategy can enhance and diversify investment portfolios.

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The quality investment factor can help investors focus on companies that are better equipped to handle uncertainties the markets may throw at us, sifting out corporations with questionable profit outlooks and rising debt levels as a way to hone in on those with solid fundamentals. In the upcoming webcast, Focus on Quality to Navigate Changing [.

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The equity markets have made a strong rebound, but risks remain. Investors should instead consider an exchange traded fund strategy with a focus on quality names as a way to maintain a solid footing for the markets ahead.

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Nassim Talb wrote the book “Antifragile,” which deep dove into opacity, luck, uncertainty, probability, human error, risk, and decision-making. When it comes to today’s market landscape, investors can utilize the principles espoused in the book to make investment decisions in this world of uncertainty amid the coronavirus outbreak.

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Even with a “phase one” U.S.-China trade deal agreement seemingly in place, the euphoria can only last for so long as more geopolitical risks begin to flood the market.

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Quality ETFs can have different definitions, but these are all ETFs to buy for stability and long-term gains. 
The post 5 Quality ETFs That Qualify for Your Portfolio appeared first on InvestorPlace.

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