We continue our study of the ability of the leading mutual fund families to add value (generate alpha). Today, we look at the equity funds of one of the most prestigious Wall Street firms: JPMorgan. Its Web site states: "J.P. Morgan Asset Management is one of the most well-respected financial institutions in the world with a reputation for character, intelligence, and strength." It notes that it has "over a century serving institutional investors, financial advisors and affluent individuals around the world," and that it has more than $1.3 trillion in assets.
The boast is that its funds use JPMorgan's "considerable global resources in an effort to deliver consistent investment results and solutions for you." It adds that its "robust investment capabilities with over 700 investment professionals in 23 countries and nearly 300 career analysts globally, with an average experience of 14 years, are committed to delivering creative investment solutions in search of alpha."
As is our practice, we'll compare the performance of JPMorgan's actively managed equity funds to the similar funds from the two leading providers of passively managed funds, Dimensional Fund Advisors and Vanguard. The table below provides the annualized returns, for each of the funds in each asset class in which they compete, for the 10-year period ending August 2011. The data is from Morningstar and funds are categorized by their investment style (how they actually invest), not by their name.
- Relative to the funds of DFA, the JPMorgan funds outperformed in one asset class (U.S. large), tied in one (U.S. REITs) and underperformed in six.
- Relative to the funds of Vanguard, JPMorgan funds outperformed in three and underperformed in four.
- An equally weighted JPMorgan portfolio underperformed an equally weighted DFA portfolio by 0.6 percent (7.0 percent versus 7.6 percent) a year.
- In the seven asset classes where comparable funds were available, an equally weighed JPMorgan portfolio edged the performance of an equally weighted Vanguard portfolio (7.1 percent versus 7.0 percent).
One interesting finding from our analysis involved how some of the funds were classified by Morningstar. We placed the active fund in the appropriate asset class based on Morningstar's investment category, which is based on three years of data. Morningstar also provides information on what it calls the fund's investment style, which is based on only the past 12 months. Morningstar classifies the JPMorgan U.S. Small Company Institutional Fund (JUSSX) as a small blend fund by investment category, but as a small value fund by investment style. If we used the latter asset class (the more current information), the overall results would have been slightly worse for JPMorgan. This highlights one of the dangers of investing in active funds -- style drift can cause you to think you're holding one type of fund, while you're actually holding something different.
The bottom line is that relative to the structured portfolios of DFA, JPMorgan funds failed to deliver alpha, underperforming by 0.7 percent a year. However, JPMorgan did beat the return of similar Vanguard funds. If this was a boxing match, JPMorgan earned a draw.
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