JPMorgan Value Advantage A
This all-cap strategy plies a reasonable, diversified approach, but deviations from its core focus on quality companies hasn’t produced an edge, resulting in an Average Process rating.
Manager Jonathan Simon normally gravitates toward financially strong companies, but he’ll make exceptions here if the price is right. Simon generally prefers less-cyclical businesses led by management teams with significant personal investment. He has historically shied away from areas such as energy and industrials in favor of consumer stocks. However, he’ll embrace risk in certain situations. He’s made select investments in struggling companies, such as Entercom Communications (now Audacy AUD), that took on debt to fuel their growth, only to suffer when results failed to materialize. Such purchases didn’t appear in his other charge, JPMorgan Mid-Cap Value FLMVX, which maintains a higher-quality focus. Poor performance from deeper-value plays eroded the strategy’s typical advantage in down markets, most notably from 2018 through 2020. While Simon’s had some blunders, he maintains a diversified portfolio and doesn’t concentrate his bets, and this has spared the strategy from steeper losses. To his credit, the portfolio held up well in 2022’s bear market through September.
Simon’s long-term mindset endures on this strategy. He trades infrequently, resulting in low portfolio turnover, often below 30%.
This all-cap strategy used to be more heavily invested in small- and mid-cap stocks, but asset growth pushed it into the more-liquid large-cap segment. Large caps have taken up about 60% of the portfolio since 2011, though mid-caps remain a key differentiator from its large-value category peers and Russell 3000 Value Index benchmark. The strategy held 32% of assets in mid-caps as of August 2022. The portfolio typically holds around 120 stocks with 20%-25% invested in its top 10 holdings, making it well diversified.
While he is conscious of his positioning relative to the Russell 3000 Value Index, Jonathan Simon isn’t afraid to make meaningful active bets. He doesn’t own large index constituents, such as ExxonMobil XOM and Comcast CMCSA, and he holds some stocks outside of the benchmark such as small-cap fuel-products retailer Murphy USA MUSA. He also held Microsoft MSFT for more than a decade prior to selling the position in July 2021.
The portfolio’s sector positioning reflects Simon’s style. He has historically favored financials because of their stronger yields and below-market valuations and shied away from technology stocks because he is more hesitant to pay up for the promises of higher growth in the future. The portfolio’s average price multiples, such as price/earnings, still tend to hover around those of the benchmark given Simon’s broader focus on financially strong companies, which tend to be pricier relative to their fundamentals.