JPMorgan SmartRetirement® Blend 2015 R6 JTQJX

In September 2021, J.P. Morgan announced plans to weave the methodology of its JPMorgan SmartSpending mutual fund series into post-retirement vintages of four target-date series under Morningstar coverage, including JPMorgan SmartRetirement Blend, by March 18, 2022. The move cements J. P. Morgan’s status as a trailblazer in the target-date space, and we reaffirm a Morningstar Analyst Rating of Gold on the cheapest R6 share class and Silver through Neutral on pricier share classes.

J.P. Morgan devised SmartSpending to help investors fund discretionary spending throughout retirement by dynamically orbiting around the long-term risk profile of a blended 40%/60% MSCI ACWI/Bloomberg Aggregate Index. It is managed by the same team as SmartRetirement, but unlike the current Income strategy, SmartSpending is geared for the investor to sell off shares of the investment annually. This approach requires active involvement from retirement plan participants to draw down their savings—no given in the set-it-and-forget-it world of target-date funds—but the target-date team cut its teeth researching the behavior of plan participants, and we remain confident that it can execute.

Our conviction stems in part from this team’s experience. Lead manager Dan Oldroyd’s history with SmartRetirement dates back to 2006, and he served as deputy to former lead skipper Anne Lester from this series’ 2012 inception through May 2020. Despite that, it was still a blow when Lester retired. Her innovative research raised the bar for target-date managers, and the SmartSpending series was her brainchild. The integration of SmartSpending demonstrates that Oldroyd will not shy away from fresh ideas, but it remains to be seen whether he can stomach the additional responsibilities he has picked up in recent years. His second-in-command, Silvia Trillo, has held her role only since 2019; she has proved capable, but the pair has not worked together for long.

Simultaneously—but independently—J.P. Morgan also shared that it will lift the stock allocation along the glide path by up to 7.5 percentage points, following the robust, team-based investing process in place here since inception. J.P. Morgan’s glide path will still target a steady equity/bond split past the retirement date.

J.P. Morgan’s dive into retirement income is characteristic of a team that is allergic to complacency. Steeped in research that takes real participants into account, this battle-hardened approach continues to set the example for other target-date series to follow, garnering a Process rating of High.

The incorporation of SmartSpending into the glide path marks the most significant adjustment to this series since its inception, but it is rooted in the pioneering participant research the team has conducted all along. The team’s crucial partnerships with outside parties like Chase retail bank have spurred insights into participant behavior, like its finding that retirees’ spending is most volatile during early years and tapers off later on. After five years of gestation in JPMorgan SmartSpending, the target-date franchise will now begin adapting its post-retirement allocations to account for this insight, aiming to fund investors’ withdrawals until age 100. (Today, only tactical tilts or glide-path updates trigger post-retirement shifts.)

J.P. Morgan routinely revisits its glide path. In 2021, lead manager Dan Oldroyd found that suppressed wage growth and increased spending rates have depressed retirement savings, which led him to increase in equity exposure by 3 percentage points to 94% for young investors. The glide path’s landing point will rise by 7.5 percentage points to 40% in stocks, modestly flattening the glide path overall.

Prior to the overhaul, all vintages collapsed into an income strategy upon retirement, which the team managed mainly as a stable anchor for the glide path. That will change by March 18, 2022, when J.P. Morgan will merge SmartSpending 2020 JTQLX into JPMorgan SmartRetirement Blend 2020 JSSRX and start investing all four 2020 vintages across series according to the SmartSpending methodology. Under this framework, the team will calibrate allocations throughout the year, managing to a short-term volatility target that resets annually to fund investors’ spending in retirement. In the long run, the team expects volatility to land close to a 40% equity/60% bond custom index.

For investors that retired around 2015, JPMorgan SmartSpending 2015 JTQDX will rebrand as JPMorgan SmartRetirement Blend 2015. (A comparable fund in the flagship series and CIT counterparts will also launch.) Going forward, each vintage will continue to feature a year-of-retirement label even after reaching the retirement date, and J.P. Morgan plans to default all newly retired participants into these vintages. The legacy income strategies for all four series will remain live, but participants will have to opt in.

The team seeks to add additional value through careful manager selection and an established tactical-allocation process. With about $159 billion in assets, the target-date franchise isn’t as nimble now, but tactical signals have still added value in 15 of the past 21 calendar years.

J.P. Morgan’s target-date team has shed some depth, but it is just as tenacious. It earns an Above Average People Pillar rating.

This team is still shaking off the specter of a recent retirement. Anne Lester, this series’ lead manager since inception, retired from this management roster and the firm in mid-2020. Although she left more than a year ago, her work still looms large; she drove much of the team’s research agenda, and SmartSpending was her creation. New lead manager Dan Oldroyd, a 20-year J.P. Morgan veteran and Lester’s longtime comanager, deserves credit for driving SmartSpending’s integration into the glide path, which was no small feat. But there is still room for concern given the significant increase to his workload in recent years, and his supporting cast of one is smaller than Lester’s three-person team had been. Silvia Trillo, named manager on this series since 2019, has the pedigree to add value, but it is still too soon to tell whether she has hit her stride yet. Despite those concerns, the team’s experience bolsters confidence in their efforts.

The duo reaps the benefits of J.P. Morgan’s standout multi-asset solutions group, numbering 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.) Strong funds fill the resulting lineup: The mutual fund series of SmartRetirement holds more than 44% of its assets in Morningstar Medalists as of June 2021.

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 series has hit a rough patch in the past five years that has diminished its total returns over longer periods. From the series' July 2012 inception through August 2021, every vintage of the R6 share class falls short of its respective S&P Target Date index and ranks near or below its Morningstar Category average—except for the Income vintage. Sharpe ratios have faltered, too, landing in the middle quintile of the funds’ respective categories and lagging behind the benchmarks.

Tactical calls are fiendishly difficult to get right on a consistent basis, and even the sharpest allocators suffer temporary bouts of underperformance. J.P. Morgan is no exception, and its tactical signals struggled throughout 2018, 2019, and the year to date through August 2021 owing to premature risk-off positions. During each stretch, SmartRetirement Blend’s total returns flounder around the 60th percentile of each fund’s respective peer group on average. Over longer periods, attribution from J.P. Morgan shows tactical decisions have added value, contributing 0.01-0.17 percentage points of return annually from inception through June 2021.

JPMorgan SmartSpending JTQDX, which will live on as JPMorgan SmartRetirement Blend 2015, launched in 2016 and has underperformed the target-date 2015 category average by nearly 2 percentage points annualized over that stretch.

It’s critical to evaluate expenses, as they come directly out of returns. The share class on this report levies a fee that ranks in its Morningstar category’s cheapest quintile. Based on our assessment of the fund’s People, Process and Parent pillars in the context of these fees, we think this share class will be able to deliver positive alpha relative to the category benchmark index, explaining its Morningstar Analyst Rating of Gold.