Morningstar - Winter 2019 - 53

A Solid, Systematic Option
JPMorgan Hedged Equity is designed to provide
predictable performance.
BEST IDEAS: MANAGER

Erol Alitovski

JPMorgan Hedged Equity JHEQX

This article is adapted from the fund's Morningstar Global Fund Report dated
Sept. 19, 2019.

Stats 09/30/2019

JPMorgan Hedged Equity JHEQX offers a straight-forward, systematic process
that should provide investors a predictable stream of attractive risk-adjusted
returns over the long term. An experienced management team and competitive
fees solidify our confidence in the fund. It continues to earn a Morningstar
Analyst Rating of Silver.

Hamilton Reiner has designed a robust strategy based on his long experience
trading options. He is supported by co-portfolio manager Raffaele Zingone
and a deep bench of 25 JPMorgan equity analysts charged with implementing
the low-tracking-error equity portfolio the options are built around. Fees
are competitive, at 0.60% for its institutionally distributed shares, a discount
to the 1.14% for the options-based Morningstar Category median for
institutional shares. K
Erol Alitovski is a global multi-asset fund analyst with Morningstar Research Services.

Morningstar Category
Options-based

Expense Ratio
0.60%

Fee Level
Low

5-Yr Annlzd Return
6.44%

5-Yr % Rank in Cat
13

Morningstar Pillars 09/30/2019
Process
∞ Positive

The fund strives to provide smoother equity returns by tempering downside and
upside returns via a systematically implemented options strategy. At the
start of every quarter, management purchases put options 5% below the S&P
500's value. To offset the cost of the put option, management first sells put
options 20% out-of-the-money. This structure should generally protect the fund
from quarterly losses in the 5% to 20% range; if markets fall less than 5%,
the fund should fall in line with the market, and if the market falls more than
20%, the fund should incur the same incremental losses beyond negative
5%. Selling the deep-out-of-the money put only recoups some of the cost of the
long put option position, so management also sells call options to make
up the difference. The call options tend to be 3.5% to 5% above the S&P 500's
value at the start of the quarter, depending on the amount of income the
fund needs to pay for the rest of the put option.

Performance
∞ Positive

People
∞ Positive

Parent
∞ Positive

Price
∞ Positive

Growth of 10K 09/30/2019

$16K

Morningstar US Market

14.44
12.64
JPMorgan Hedged Equity

14
12
10
8

10/2016

10/2017

10/2018

Morningstar Style Box 09/30/2019

Morningstar Ratings 09/30/2019

Fund Centroid
weighted avg. of Period
equity holdings
3-Yr
Zone
5-Yr
75% of fund
equity holdings 10-Yr

Micro Small Mid Large Giant

The systematic implementation removes elements of market-timing and
increases the chances of the fund performing within expectations
like in the fourth quarter of 2018 and the first quarter of 2019. In the former
period, the fund's losses were limited to 5.4% compared to 13.5% for
the S&P 500. During the following quarter, the S&P 500 rallied 13.7% and
the fund gained 4.0%.

Morningstar Analyst Rating
*

Mstar
Return

Mstar
Risk

High

Below Avg QQQQQ

Above Avg Average
-

-

QQQQQ

-
QQQQQ

Overall Rating

Deep Core Core Core High
Value Value
Grwth Grwth

Mstar
Rating

Top 5 Sectors 09/30/2019

Sectors

■ Fund 

❙ Category Average

22.36

20.82

16.69

16.69

15.99

14.22

14.22

10.73

13.49 13.96

15.69

13.74

10.88

10.54

15.33

y Financial Services

12.93

t Consumer Cyclical
d Healthcare
p Industrials

3-Yr High 3-Yr Low

21.87 21.94

a Technology

10.54 10.64

0%

10

20

30

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Morningstar - Winter 2019

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