We Tried to Re-Create JPMorgan’s Mutual Fund Returns and Gave Up

The bank’s impressive mutual-fund-group performance figures come with little explanation
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Last month at JPMorgan Chase’s 2015 investor day—where executives discuss results for the previous year in front of analysts and shareholders—the bank displayed impressive numbers for the performance of its mutual funds. Pie charts in the asset management unit’s presentation showed the percentage of money invested in funds that ranked in the top half of their categories: In fixed-income funds with 10-year records, the figure was 85 percent; for stock funds with 10-year records, it was 83 percent.

The presentation included a five-and-a-half-page appendix discussing sources and methods. While the notes on mutual fund and alternative asset performance include statements such as “the analysis excludes Brazil and India domiciled funds”—without saying why—they do not provide full details of how the calculations were done. Even so, that marked a big change from the previous year’s presentation, where similarly impressive numbers were displayed with a 30-word source line citing Lipper, Morningstar, and Nomura—and nothing else. “What the heck were they thinking with the 2013 report?” asks Anita Krug, associate dean at the University of Washington School of Law in Seattle.

The two approaches—no explanation a year ago and long notes this year—raise questions about how JPMorgan has come up with a set of numbers describing a key part of its business. The U.S. Securities and Exchange Commission says companies can’t mislead investors in public presentations. “Disclosures should be written so people without any particular financial background can understand them,” says Mercer Bullard, director of the University of Mississippi School of Law’s Business Law Institute and a former SEC official.

JPMorgan’s asset management unit posted record revenue and profit in 2014. A big part of that came from the bank’s mutual fund operation, which, with assets of $443 billion, has made JPMorgan the world’s fastest-growing active mutual fund manager, according to the bank. “Leading investment performance leads to leading investment flows,’’ said Mary Erdoes, chief executive officer of JPMorgan asset management, during her investor day remarks on Feb. 24.


Saying that a certain percentage of assets are above-average doesn’t convey a lot of information. It doesn’t say how many of the bank’s 746 funds are doing better than their peers or how much money investors are making. The presentation to investors is aimed at people who own JPMorgan stock, not those who put money into its mutual funds.

It’s not as if the company doesn’t have anything to brag about. Its U.S. Equity Fund, for example, with $13.6 billion in assets, has an average annual return of 9.1 percent for the 10 years through March 3, according to Morningstar, topping the 7.9 percent return of the Standard & Poor’s 500-stock index. That’s a more typical way of looking at the performance of mutual funds.

A year ago, a list of achievements in JPMorgan’s investor presentation included the statement: “80 percent of 10-year mutual fund AUM [assets under management] in top 2 quartiles.” Asked about such numbers in November, JPMorgan declined to provide details of the calculations for publication. So Bloomberg asked two fund research companies the bank cited as sources—Lipper and Morningstar—to come up with their own estimates. (All calculations exclude money-market mutual funds.) Lipper, using its standard methods, calculated that 64 percent of the bank’s funds ranked in the top half of their categories, after adjusting for assets—giving greater weight to bigger funds. Morningstar, which didn’t adjust for assets, came up with 58 percent. As for Nomura, the third source JPMorgan cited, Nomura Holdings said it doesn’t compile comprehensive fund-performance data. A company called Nomura Research Institute said it does track fund performance in Japan but declined to provide data.

Many of the numbers for JPMorgan’s “alternatives/absolute return” category, which includes hedge funds, funds of hedge funds, some mutual funds, and money managed in separate accounts, are not public. According to the bank’s 2014 presentation, 97 percent of alternative assets beat their benchmarks for the previous 10 years. In 2015 that figure rose to 100 percent. Working from their own, more limited data on JPMorgan’s alternative assets, Morningstar and Lipper got different numbers. Morningstar said 33 percent of JPMorgan’s alternative assets beat their benchmarks over the previous 10 years. Lipper’s figures show that only 14 percent did.

“Bloomberg’s analysis is incorrect,” Darin Oduyoye, a JPMorgan spokesman, wrote in an e-mail. “The 10-year alternatives statistics cited from Morningstar and Lipper only includes publicly available mutual funds, which are a small portion of J.P. Morgan’s AUM in this category, as most of the AUM is in privately offered investment accounts.” A footnote in JPMorgan’s 2015 presentation cautions that “the source for all data used is J.P. Morgan. It is calculated on a best efforts basis and is used for illustrative purposes only. It is considered preliminary and unaudited and not meant to represent an official performance composite of the Firm.”

Shortly before this year’s investor day, JPMorgan provided Bloomberg with what it called an illustration of how it reached the 80 percent number. Using Morningstar Direct, a Web-based tool, it looked at all the funds with 10-year records. It checked each one’s ranking within its category for the 10-year period and its assets in the final month of the period, and concluded that 79.8 percent of the assets were in funds that ranked in the top two quartiles of their categories.

Weighting each fund based on its assets and ranking at the end of a period—as JPMorgan did—may give too much importance to winners and not enough to losers, says Michelle Swartzentruber, a senior research analyst at Morningstar. “Year-end current AUM is commonly used in the asset management industry to analyze a firm’s financial strength and earnings potential,” Oduyoye says. “Given that the audience for investor day and the annual report is JPMorgan Chase shareholders and equity analysts, current AUM is more relevant to their analysis.”

Morningstar’s method differs from JPMorgan’s. To reflect each fund’s ups and downs, the company typically calculates its rank within its category for every month to come up with an average ranking for the period, and does the same with assets. In effect, it uses a video of the fund, not a snapshot. That way, a fund that had a couple of hot years early in the 10-year period, attracted more cash from investors, and then saw its performance level off doesn’t get too much credit for those first strong years, when it was investing a relatively small amount of money.

Using its standard methods for calculating asset-weighted returns, Morningstar finds that JPMorgan’s funds outperformed 57.5 percent of similar funds on average. “It would be nice if there was a consistent way for fund companies to produce this type of information, so there’s not this jumble of percentiles and methodologies,” Swartzentruber says.

Do other money managers run into these statistical thickets? An unscientific sampling of 10 financial companies’ annual reports found nothing like JPMorgan’s pie charts. Several companies offered no fund-performance claims in their reports, including Bank of America, Citigroup, Morgan Stanley, and Wells Fargo.

Invesco included a table showing asset-based rankings for different types of funds. Its worst performers were funds investing in U.K. stocks, of which only 11 percent ranked in the top half of the category. Stable-value funds were the best: 100 percent ranked in the top half. As data sources, Invesco listed Lipper, Morningstar, IMA, Russell, Mercer, EVestment Alliance, Sitca, and Value Research. A spokesman for Invesco declined to comment.

The bottom line: JPMorgan’s calculations of its mutual fund family’s performance are hard to re-create.

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