JPMorgan Sustainable Municipal Income I HLTAX

JPMorgan Sustainable Municipal Income I boasts strong People and Process Pillar ratings, but other weaknesses hold this strategy's Morningstar Quantitative Rating at Neutral. The portfolio maintains a sizable cost advantage over competitors, priced within the second-lowest fee quintile among peers.

The management team's considerable industry experience drives an Above Average People Pillar rating for the strategy. The strategy's investment approach stands out and earns an Above Average Process Pillar rating. The portfolio has overweighted debt with three- to five-year maturities and has an underweight in A rated bonds compared with category peers. The strategy has a solid parent that earns an Above Average Parent Pillar rating. This firm has had a competitive lineup success ratio and overall affordable fees.

Morningstar's evaluation of this fund's process seeks to understand management's investment philosophy, and whether it has been applied consistently over time and can add value across the market cycle. JPMorgan Sustainable Municipal Income Fd earns an Above Average Process Pillar rating.

Compared with other funds in the Muni National Interm Morningstar Category, this fund, historically, hews closely to peers' credit and interest-rate sensitivity. Opening the analysis to additional factors, the portfolio, over time, has displayed three biases whether toward or away from certain fixed-income instruments. First, the managers have displayed an overweight position on debt, with three- to five-year maturities relative to the average strategy in the category. Additionally, there's been an underallocation from A rated bonds. And finally, the fund does not consistently lean toward or away from corporate bonds, but the current portfolio is underweight its peers.

This strategy has a 2.5% 12-month yield, higher than its average peer's 2.1%. It also has a 3.7% 30-day SEC yield (a measure similar to yield-to-maturity). Higher yields tend to indicate higher credit risk. The portfolio favors lower-quality credit with an average of BBB, compared with the category average's A and 5% of the fund's assets are rated non-investment grade, compared to its peers' 1%. Strategies that take on more credit risk tend to be at their best when markets are as well. This risk contributes to strong performance during bull markets at the cost of losing more on the downside.

JPMorgan Sustainable Municipal Income Fd's experienced corps of managers and strong longest-tenured manager underpins the strategy's Above Average People Pillar rating. David Sivinski’s veteran status, with over 25 years of portfolio management experience, imprints a positive mark on the strategy as it brings a wealth of experience to the table. The average Morningstar Rating of the strategies they currently manage is 2.8 stars, demonstrating, in aggregate, that they provide middling value for investors. David Sivinski has an experienced backdrop of support. The three listed managers boast over 25 years of average portfolio management experience.

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 cohorts globally and a diverse set of 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.

This strategy's Institutional share class' long-term performance is mixed depending on the yardstick used. It has provided similar returns compared with peers, but poor returns compared with the category benchmark. This share class mirrored the category average's 1.4% return over the eight-year period and its 1.4% return over a 10-year period. However, it was not able to clear the higher hurdle of outperforming the category index, Bloomberg Barclays Municipal 1-15 Year Bond Index. It trailed by an annualized 38 basis points over the same 10-year period.

When adjusting for risk, the fund is not favorable. The share class had a lower Sharpe ratio, a measure of risk-adjusted returns, than the index over the trailing 10-year period. These subpar risk-adjusted results have not resulted in the drawback of a bumpier ride for investors. This strategy took on similar risk as the benchmark, as measured by standard deviation. Finally, the share class proved itself ineffective as it was unable to generate alpha, over the same 10-year period, against the category group index: a benchmark that encapsulates the performance of the broader asset class.

Returns vary from period to period, but expenses are always deducted. It is good practice to weigh them heavily in any investment evaluation. This share class charges a fee that places it in its Morningstar Category's second-cheapest quintile. Despite this fee, the fund’s People, Process, and Parent Pillars suggest this share class is probably best avoided, as it does not offer investors a good chance at producing positive alpha versus its peer benchmark, supporting its Morningstar Quantitative Rating of Neutral.