JPMorgan Small Cap Blend A VSCOX Fund Analysis

A strong management team and sound investment process underpin JPMorgan Small Cap Blend A's Morningstar Quantitative Rating of Silver. Fees are a weakness here. The strategy's lofty fees are a high hurdle to clear, as it is priced within the second-costliest quintile among peers.

The management team's considerable industry experience drives an Above Average People Pillar rating for the strategy. The strategy's sensible investment philosophy earns an Above Average Process Pillar rating. The portfolio has underweighted quality exposure and liquidity exposure compared with category peers. Low quality exposure is attributed to stocks with higher financial leverage and lower profitability. And a low liquidity exposure is rooted in stocks with lower trading volumes, limiting managers' flexibility. The strategy belongs to a strong asset-management firm that earns an Above Average Parent Pillar rating. The firm, for example, has had a competitive lineup success ratio and overall affordable fees.

Morningstar's evaluation of this fund's process aims to determine how repeatable, consistent, and reliable execution is, and whether management maintains competitive advantage. JPMorgan Small Cap Blend Fund earns an Above Average Process Pillar rating.

This strategy leans toward smaller, more value-oriented companies than its average peer in the Small Growth Morningstar Category. Analyzing additional factors, this strategy tilts toward low-quality stocks or the shares of companies with more financial leverage and lower profitability. These are not defensive holdings. The strategy is also historically less exposed to the factor compared with Morningstar Category peers. Given the high trading volume of holdings, this strategy is exposed to liquid assets. Although this may mean managers are paying a premium, in the case of a market downturn, it contributes to a more flexible exit strategy. But when compared with category peers, the strategy historically has had less exposure. Additionally, this strategy has low yield exposure, with the portfolio holding fewer stocks with high dividend or buyback yields. Companies that choose not to return capital to shareholders are often investing for growth and carry more downside risk. However, the portfolio has less exposure than its Morningstar Category peers. More information on a fund and its respective category's factor exposure can be found in the Factor Profile module within the Portfolio section.

The portfolio is overweight in financial services and real estate relative to the average peer in its category by 7.9 and 4.4 percentage points in terms of assets, respectively. The sectors with low exposure compared to their category peers are technology and healthcare, underweight the average by 8.1 and 6.8 percentage points of assets, respectively. The portfolio is positioned across 234 holdings and assets are more dispersed than peers in the category. In particular, 10.3% of the strategy's assets are concentrated in the top 10 fund holdings, as opposed to the typical peer's 25.6%. And finally, in terms of portfolio turnover, this fund trades less frequently than the category’s average, potentially limiting costs to investors.

JPMorgan Small Cap Blend Fund benefits from an experienced corps of managers and its longest-tenured manager, warranting an Above Average People Pillar rating. Eytan M. Shapiro, 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. Eytan M. Shapiro has an experienced listed co-manager. Together, they average over 25 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 outstripped both its peers and the category benchmark. Over a 10-year period, this share class outpaced the category's average return by 2.6 percentage points annualized. And it also beat the category index's, Russell 2000 Growth Index's, gain by an annualized 2.9 percentage points over the same period. Although the overall rating does not hinge on one-year performance, its impressive 10.4% loss is worth mentioning, a 12.0-percentage-point lead over its average peer, placing it within the top 10% of its category.

The risk-adjusted performance only continues to make a case for this fund. The share class outstripped the index with a higher Sharpe ratio, a measure of risk-adjusted return, over the trailing 10-year period. Often, higher returns are associated with more risk. However, this strategy hewed close to the benchmark's standard deviation. However, 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.

Fees are one of the strongest indicators of future performance. This share class levies a fee that ranks in its Morningstar Category's second-costliest quintile. Even with this fee, the fund’s People, Process, and Parent Pillars indicate this share class can produce positive alpha relative to its category benchmark, leading to its Morningstar Quantitative Rating of Silver.