JPMorgan Tax Free Bond A PMBAX Fund Analysis

JPMorgan Tax Free Bond A boasts strong Process and People Pillar ratings, but other weaknesses hold this strategy's Morningstar Quantitative Rating at Neutral. The strategy charges fees in line with its similarly distributed peers, priced within the middle quintile.

The strategy's investment process inspires confidence and earns an Above Average Process Pillar rating. Independent of the rating, analysis of the strategy's portfolio shows it has maintained an underweight position in A rated bonds and an overweight in cash compared with category peers. The longest-tenured manager's extensive experience drives the strategy's Above Average People Pillar rating. The strategy is part of a first-rate parent, as shown by a high lineup success ratio and overall attractive fees. These attributes support its Above Average Parent Pillar rating.

Morningstar's style-agnostic evaluation of this fund's process seeks to understand whether the strategy has a performance objective and sensible, clearly defined, repeatable execution. JPMorgan Tax Free Bond Fund earns an Above Average Process Pillar rating.

Compared with other funds in the Muni National Long 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, managers have shown a consistent underweight position on A rated bonds compared to peers. Additionally, the managers have exhibited a notable sector bias toward cash. And finally, the fund leans away from debt with 20- to 30-year maturities.

This strategy's 12-month yield is 2.8%, which is near its average peer's. It also has a 3.8% 30-day SEC yield (a measure similar to yield-to-maturity). The portfolio favors lower-quality credit with an average of BBB, compared with the category average's A and its non-investment grade stake is 4% of assets, compared to its peers' 1%. Higher credit risk strategies tend to pay off most when markets are hot.

JPMorgan Tax Free Bond Fund's longest-tenured manager and experienced team underpins the strategy's Above Average People Pillar rating. Richard D. Taormina, the longest-tenured manager on the strategy, provides strong guidance, offering over 25 years of portfolio management experience. The average Morningstar Rating of the strategies they currently manage is 2.6 stars, demonstrating disappointing risk-adjusted performance. Despite having a small team, the two listed managers boast 22 years of 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 A share class has held up poorly, falling behind both its peers and the category benchmark. Over a 10-year period, this share class undershot its average peer by 14 basis points annualized. It was also not able to outpace the category benchmark, Bloomberg Barclays Municipal Bond Index, where it trailed by an annualized 46 basis points over the same period.

When risk is properly accounted for, the strategy is not any more compelling. The share class failed to beat the index with a lower Sharpe ratio, a measure of risk-adjusted returns, over the trailing 10-year period. However, this strategy stayed in line with the benchmark's 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.

It is imperative to evaluate fees, which erode expected returns. This share class sits in the middle quintile of its Morningstar Category. Its middling fee, paired with the fund’s People, Process, and Parent Pillars, suggests that this share class could struggle to produce positive alpha versus its category benchmark, leading to its Morningstar Quantitative Rating of Neutral.