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JPMorgan Investor Growth & Income I ONGFX

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Morningstar’s Analysis

Analyst rating as of .

This fund-of-funds suite achieves solid risk-adjusted returns by design.

Our analysts assign Neutral ratings to strategies they’re not confident will outperform a relevant index, or most peers, over a market cycle.

This fund-of-funds suite achieves solid risk-adjusted returns by design.

Senior Analyst

Summary

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All four funds in the JPMorgan Investor target-risk series--JP Morgan Investor Conservative Growth, JP Morgan Investor Balanced, JP Morgan Investor Growth & Income, and JP Morgan Growth--earn Average ratings for People and Process, driving Morningstar Analyst Ratings of Neutral across all share classes.

Lead manager Ove Fladberg compiles all-in-one portfolios that cautious investors can own comfortably. Because investors tend to fear volatility and sell at the wrong time, Fladberg seeks downside protection and sound risk/return profiles; the funds’ Sharpe ratios testify to those qualities. That said, the funds often lag peers and indexes in strong rallies. All in, the two lower-risk funds have lagged category indexes on Fladberg’s watch, while the higher-risk funds have topped their bogies. These funds-of-funds are sedate fundamentally. Their equity/bond splits are largely stable: 30/70 for Conservative Growth; 50/50 for Balanced; 70/30 for Growth & Income; 90/10 for Growth. While J.P. Morgan’s three- to five-year market and business cycle forecasts drive tactical changes, they’re subdued--rarely more than a few percentage points of change. The Columbus-based Asset Management Solutions team has worked together for a long time and many of the members have decades of experience. That said, in early 2020 it lost a portfolio manager who had significant responsibilities, and sometimes it takes time to see how well shifting duties work out.

This group of funds has made strides since Fladberg became lead portfolio manager in 2014. The funds-of-funds once had an unwieldy 40 holdings each, but that’s below 30 now. The Investor funds used to buy constituent funds with low asset bases, short histories or both. Most funds owned now are more proven, following J.P. Morgan’s “shrink to grow” mandate that led to the liquidation or merging of some former constituent funds.

These funds have gradually improved the past few years, and if they stabilize may become good one-fund options.

Process

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The process successfully aims to produce dependable, stable portfolios with solid risk/reward profiles, earning an Average Process Pillar rating.

The Asset Management Solutions team starts the year by setting a strategic asset mix. To do so they use three main inputs from firm leadership. The baseline allocation comes from J.P. Morgan’s well-respected long-term capital market assumptions, a 10- to 15-year forecast. Separately, three- to five-year projections examine both the market cycle and business cycle. The AMS team uses the former to assess present valuations and the latter to pick styles likely to thrive in the forecast environment. The strategic allocations are steady, and the tactical shifts tend to be muted and gradual. To populate the funds, AMS uses firm leader Robert White's Multi-Asset Manager Research work. These weekly performance reports and monthly deep dives on select firm strategies examine philosophy, process, people, and performance. AMS uses this material and its own work to seek high Sharpe ratio funds that diversify the existing lineup and drive a better overall risk/reward balance for the Investor funds. They seek uncorrelated excess returns but also sometimes offset styles--recently adding Small Cap Equity to offset Small Cap Value’s volatility, for instance.

People

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A small team runs a large asset base competently, earning an Average People rating.

Ove Fladberg, the guiding force here, heads Columbus’s seven-member, Asset Management Solutions team. Three team members, portfolio manager Anshul Mohan and analysts Luying Wei and Oliver Furby, handle asset allocation and manager selection. Three more—portfolio managers Mike Loeffler and Nick D’Eramo, and analyst Alex Hamilton--implement the portfolios. The team averages 19 years of industry experience, mostly at J.P. Morgan. There was a significant departure recently: In early 2020, portfolio manager Pete Klingelhofer, an equity manager research expert and chair of the asset allocation committee, went to another firm. The AMS team gets substantial help from firm leadership: quantitative research head Katherine Santiago, qualitative chief John Bilton, and manager research specialist Robert White. The asset mix work from Santiago and Bilton fuels Columbus’s asset-allocation committee, which Fladberg runs monthly, to drive any tactical shifts. To fill the portfolios, White’s work helps Mohan run manager selection with his specialty in fixed income; Wei now leads equity manager selection here.

All told AMS runs nearly $130 billion in exchange-traded funds and multimanager portfolios, $20 billion of that in the Investor funds. That’s hefty weight, but manageable given their process.

Parent

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J.P. Morgan Asset Management’s strong investment culture, which shows through its long-tenured, well-aligned portfolio managers and deep analytical resources, supports a renewed Above Average Parent rating.

Across asset classes and regions, the firm's diverse lineup features many Morningstar Medalists, such as its highly regarded U.S. equity income strategy that’s available globally. There's been some turnover in the multi-asset team recently, but it remains deeply resourced and experienced. Manager retention and tenure rates, and degree of alignment for U.S. mutual funds compare favorably among the competition. Managers' compensation emphasizes fund ownership over stock ownership, which is distinctive for a public company.

The firm continues to streamline its lineup and integrate its resources further. For instance, in late 2019, the multi-asset solutions division combined with the passive capabilities. The firm hasn’t launched trendy offerings as it’s mostly expanded its passive business lately, but acquisition-related redundancies and more hazardous launches in the past weigh on its success ratio, which measures the percentage of funds that have both survived and outperformed peers. Fees are regularly reviewed downward globally; they're relatively cheaper in the U.S. than abroad. Also, the firm is building its ESG capabilities and supports distinctive initiatives on diversity.

Price

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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 second-cheapest quintile. Even so, based on our assessment of the fund’s People, Process and Parent pillars in the context of these fees, we don’t think this share class will be able to deliver positive alpha relative to the category benchmark index, explaining its Morningstar Analyst Rating of Neutral.

Performance

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From the time Ove Fladberg became a listed manager in October 2010 through July 31, 2021, the institutional share classes of the more cautious funds, Conservative Growth and Balanced, have lagged their category indexes. The institutional share classes of the two more aggressive funds, Growth & Income and Growth, have outperformed their respective bogies. As is often the case, asset allocation has tended to drive those results. Where a fund has generally had a lower relative equity weight, as with Conservative Growth, it has underperformed over that stretch. Where it has generally been overweight equity, as with Growth & Income, it has outperformed. There was one especially encouraging exception: all four funds topped benchmarks, as well as peers, during the COVID-19 crisis between Feb. 20 and March 23, 2020.

The Sharpe ratios of the funds, which measure excess returns per unit of volatility, tell a somewhat similar story. The institutional shares of Conservative Growth and Growth & Income are in line with their respective indexes over Fladberg’s tenure through July 31, 2021. Balanced and Growth, on the other hand, have better Sharpe ratios than their bogies. All four funds have better Sharpe ratios than their average category peer. Retail investors may not examine Sharpe ratios, but here they suggest valued traits.

Portfolio

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As of June 30, 2021, 30 J.P. Morgan funds filled the four Investor funds’ portfolios. Each Investor fund tends to use most of these constituents--ranging from 24 to 29 holdings. The counts are down from closer to 40 in 2015, but they still have a significant number of small weightings. The portfolios averaged five constituents that garnered less than a 1% allocation, limiting their impacts. The team has placed renewed emphasis on quality constituents, especially in recent years. Of the 30 underlying funds, 12 are Morningstar Medalists that hold nearly 60% of the assets across the Investor funds. Of the 18 other funds, eight have either four- or five-star ratings.

We’ve previously criticized the team’s tendency to add unproven funds, which added turnover when some were merged or liquidated. That picture has improved. Currently only five funds in the portfolios are younger than four-and-a-half years. They all have significant assets, from nearly $1 billion to more than $10 billion, making it less likely J.P. Morgan will cull them. In addition to bond and equity portfolios, the Investor Funds carry cash--currently between 5% for Growth and 8% for Conservative Growth. Many peer funds strive to be fully invested, so these levels tend to be higher than 75% of category peers. Cash tends to damp returns on the way up and cushion them going down.