JPMorgan Equity Index provides a broadly diversified and low-turnover portfolio that is representative of U.S. large-cap stocks. Its competitive expense ratio gives it a durable performance edge over category peers. Under our new ratings framework, the R6 share class warrants a Morningstar Analyst Rating upgrade to Gold from Silver due to its lower fee; the more expensive share classes maintain Silver and Bronze ratings.
The S&P 500 index is a market-cap-weighted index that harnesses the market’s collective wisdom to efficiently capture the opportunity set in the U.S. large-cap space. S&P’s index eligibility criteria require index constituents to be profitable and highly liquid. While most large-cap names are financially viable, the requirement ensures that occasional exceptions are kept out of the index, improving the portfolio risk profile. An index committee selects the index constituents, which represent approximately 80% of the total market capitalization of the U.S. equity market. While the committee-based approach lacks transparency, it provides more flexibility around reconstitution and can reduce unnecessary index changes. This mitigates transaction costs as compared with more rigidly rules-based indexes.
The large-cap space enjoys a high level of liquidity and visibility, allowing new information to be quickly incorporated into prices. Market-cap weighting leverages this collective wisdom to determine position sizes in an efficient manner. This approach promotes broad diversification and creates a portfolio that is representative of the large-blend Morningstar Category.
Market-cap weighting can expose the index to significant stock- or sector-level concentration during the market’s intermittent manic episodes. This can tilt the portfolio toward richly valued names or sectors, such as was the case at the height of the tech bubble. Still, in the long run, the benefits of broad diversification, low turnover, and a low fee outweigh these drawbacks.
Its previous tax-efficiency issue was addressed by the launch of the R6 share class in 2016, which brought in net inflows and substantially lowered its capital gains distributions.