PRINCIPLES FOR EFFECTIVE PORTFOLIO CONSTRUCTION€¦ · portfolio construction; within it you will discover key strategies and a systematic framework to build portfolios that help

RETIREMENT INSIGHTSPORTFOLIO INSIGHTS

PRINCIPLES FOR EFFECTIVE

PORTFOLIO CONSTRUCTION

A DISCIPLINED APPROACH TO BUILDING STRONGER PORTFOLIOS

4Q 2019

WITH LOWER RETURN EXPECTATIONS, IT HAS NEVER BEEN MORE

IMPORTANT TO BUILD PORTFOLIOS THAT HAVE GREATER POTENTIAL

TO CAPTURE OPPORTUNITIES, WEATHER UNCERTAINTIES AND ACHIEVE

LONG-TERM GOALS. THIS BOOKLET PROVIDES THE ESSENTIALS OF

PORTFOLIO CONSTRUCTION; WITHIN IT YOU WILL DISCOVER KEY

STRATEGIES AND A SYSTEMATIC FRAMEWORK TO BUILD PORTFOLIOS

THAT HELP SOLVE INVESTOR NEEDS.

LET’S SOLVE IT.

PRINCIPLES FOR EFFECTIVE PORTFOLIO CONSTRUCTION

START WITH AN ASSET ALLOCATION PLAN1

DIVERSIFY TO SMOOTH OUT THE RIDE2

REBALANCE TO STAY THE COURSE3

USE THE 4 Ps FRAMEWORK TO SELECT INVESTMENTS 4

CHOOSING THE APPROPRIATE INVESTMENT IS KEY 5

LOOK BEYOND TOTAL RETURNS6

PUT IT ALL TOGETHER7

4 DISCIPLINED APPROACH TO BUILDING STRONGER PORTFOLIOS


START WITH AN ASSET ALLOCATION PLAN1

Begin at the end—What’s the goal?

A portfolio should be a reflection of each investor’s unique goals.

• What are they trying to accomplish? • When will they need the money? • How much risk are they willing to take to achieve their objectives?

Asset allocation has historically been the primary driver of a portfolio’s performance and risk. Answering these questions will determine how to properly allocate across asset classes and help investors achieve their goals.

J .P. MORGAN ASSET MANAGEMENT 5

LOW

Building a strategic asset allocation model

What is your risk tolerance level?

HIGH

When will you need the money?What are your goals?

STRATEGIC ASSET ALLOCATION MODELS*

EQUITY / FIXED INCOMEBUYING HOME

COLLEGE RETIREMENT

RETURN 6.2% 8.2% 10.2% RISK 4.2% 7.6% 11.7%

MUST BE ACCOMPANIED BY “PORTFOLIO INSIGHTS: BUILDING BETTER PORTFOLIOS”FOR INSTITUTIONAL/WHOLESALE/PROFESSIONAL CLIENTS AND QUALIFIED INVESTORS ONLY | NOT FOR RETAIL USE OR DISTRIBUTION

Model portfolios—without alternatives3Q 2017

PORTFOLIO INSIGHTS

Source: J.P. Morgan Asset Management Multi-Asset Solutions; assessments are made using data and information up to May 31, 2017. For illustrative purposes only. † Strategic allocations shown in the left column for each model portfolio do not include this quarter’s tactical shifts. The current allocation for a given model would equal the sum of the strategic allocation plus the tactical shift.

*Source: Russell, Morgan Stanley, MSCI, Bloomberg Barclays, Merrill Lynch, J.P. Morgan Asset Management Multi-Asset Solutions. U.S. large cap: Russell 1000 Growth Index® & Russell 1000 Value Index®; U.S. mid/small cap: Russell 2500 Index®; U.S. REITs: Morgan Stanley REIT Index; developed markets equity: MSCI® EAFE Index; emerging markets equity: MSCI Emerging Markets IndexSM; U.S. investment grade: Bloomberg Barclays U.S. Aggregate Index; U.S. high yield: Bloomberg Barclays U.S. Corporate High Yield 2% Issuer Capped Bond Index; emerging markets debt: J.P. Morgan EMBI Global Index.

ALLOCATIONS AND SHIFTS Strategic† Tactical shift Strategic Tactical shift Strategic Tactical shift Strategic Tactical shift Strategic Tactical shift

Equity 20.0% 40.0% 50.0% 60.0% 80.0%

U.S. large cap 9.5% +0.5% 19.3% +0.5% 24.0% +1.0% 28.8% +1.0% 38.5% +1.0%

– U.S. large cap growth 4.8% +0.25% 9.6% +0.25% 12.0% +0.50% 14.4% +0.50% 19.3% +0.50%

– U.S. large cap value 4.8% +0.25% 9.6% +0.25% 12.0% +0.50% 14.4% +0.50% 19.3% +0.50%

U.S. mid/small cap 2.5% 4.8% 6.0% 7.3% 9.5%

U.S. REITs 1.0% 2.0% 2.5% 3.0% 4.0%

Developed markets equity 5.0% +1.0% 10.0% +1.0% 12.5% +2.0% 15.0% +2.0% 20.0% +2.0%

Emerging markets equity 2.0% +0.5% 4.0% +0.5% 5.0% +1.0% 6.0% +1.0% 8.0% +1.0%

Fixed income/Inflation 80.0% 60.0% 50.0% 40.0% 20.0%

U.S. investment grade 62.8% -2.5% 46.8% -2.5% 38.5% -5.0% 30.3% -5.0% 12.5% -5.0%

U.S. high yield 10.5% +0.5% 8.0% +0.5% 7.0% +1.0% 6.0% +1.0% 4.5% +1.0%

Emerging markets debt 6.8% 5.3% 4.5% 3.8% 3.0%

Cash 0.0% 0.0% 0.0% 0.0% 0.0%

TIPS 0.0% 0.0% 0.0% 0.0% 0.0%

EQUITY-FI ALLOCATIONS 20-80 40-60 50-50 60-40 80-20

HISTORICAL RESULTS / PORTFOLIO STATISTICS (as of March 31, 2017*)

Historical results

3-year returns 4.0% 4.7% 5.0% 5.4% 6.0%

5-year returns 4.7% 6.1% 6.9% 7.6% 9.0%

10-year returns 5.3% 5.5% 5.6% 5.6% 5.7%

Portfolio statistics

10-year volatility1 5.9% 8.6% 10.4% 11.9% 15.0%

Max historical drawdown2 -15.6% -27.4% -34.3% -39.4% -48.8%

Sharpe ratio3 0.81 0.60 0.52 0.47 0.40

CONSERVATIVE

EXAMPLES BY RISK PROFILEAGGRESSIVE

EQUITY-FI

20-80 40-60 50-50 60-40 80-20

The model performance shown is hypothetical and for illustrative purposes only and does not represent the performance of a specific investment product. The performance presented does not reflect the deduction of expenses associated with a fund, such as investment management fees and fund expenses, including sales charges if applicable. Portfolio results and statistics are calculated based on the current asset allocation weightings as shown on page 5 and assume a monthly rebalancing to these weights. The inception date is December 31, 2004. Performance for periods longer than a year has been annualized using a geometric mean. Due to rounding, values may not total 100%. This information should not be relied upon as investment advice, research or a recommendation by J.P. Morgan regarding the funds or the use of the model portfolios.



PORTFOLIO INSIGHTS




Equity 20.0% 40.0% 50.0% 60.0% 80.0%

U.S. large cap 9.5% +0.5% 19.3% +0.5% 24.0% +1.0% 28.8% +1.0% 38.5% +1.0%



U.S. mid/small cap 2.5% 4.8% 6.0% 7.3% 9.5%

U.S. REITs 1.0% 2.0% 2.5% 3.0% 4.0%





U.S. high yield 10.5% +0.5% 8.0% +0.5% 7.0% +1.0% 6.0% +1.0% 4.5% +1.0%


Cash 0.0% 0.0% 0.0% 0.0% 0.0%

TIPS 0.0% 0.0% 0.0% 0.0% 0.0%



Historical results

3-year returns 4.0% 4.7% 5.0% 5.4% 6.0%

5-year returns 4.7% 6.1% 6.9% 7.6% 9.0%

10-year returns 5.3% 5.5% 5.6% 5.6% 5.7%


10-year volatility1 5.9% 8.6% 10.4% 11.9% 15.0%


Sharpe ratio3 0.81 0.60 0.52 0.47 0.40

CONSERVATIVE


EQUITY-FI

20-80 40-60 50-50 60-40 80-20




PORTFOLIO INSIGHTS




Equity 20.0% 40.0% 50.0% 60.0% 80.0%

U.S. large cap 9.5% +0.5% 19.3% +0.5% 24.0% +1.0% 28.8% +1.0% 38.5% +1.0%



U.S. mid/small cap 2.5% 4.8% 6.0% 7.3% 9.5%

U.S. REITs 1.0% 2.0% 2.5% 3.0% 4.0%





U.S. high yield 10.5% +0.5% 8.0% +0.5% 7.0% +1.0% 6.0% +1.0% 4.5% +1.0%


Cash 0.0% 0.0% 0.0% 0.0% 0.0%

TIPS 0.0% 0.0% 0.0% 0.0% 0.0%



Historical results

3-year returns 4.0% 4.7% 5.0% 5.4% 6.0%

5-year returns 4.7% 6.1% 6.9% 7.6% 9.0%

10-year returns 5.3% 5.5% 5.6% 5.6% 5.7%


10-year volatility1 5.9% 8.6% 10.4% 11.9% 15.0%


Sharpe ratio3 0.81 0.60 0.52 0.47 0.40

CONSERVATIVE


EQUITY-FI

20-80 40-60 50-50 60-40 80-20


*10-year historical results as of 12/31/2018. Source: Bloomberg Barclays, Merrill Lynch, Morgan Stanley, MSCI, Russell, J.P. Morgan Asset Management Multi-Asset Solutions. U.S. large cap: Russell 1000 Growth Index® & Russell 1000 Value Index®; U.S. mid/small cap: Russell 2500 Index®; U.S. REITs: Morgan Stanley REIT Index; developed markets equity: MSCI® EAFE Index; emerging markets equity: MSCI Emerging Markets IndexSM; U.S. investment grade: Bloomberg Barclays U.S. Aggregate Index; U.S. high yield: Bloomberg Barclays U.S. Corporate High Yield 2% Issuer Capped Bond Index; emerging markets debt: J.P. Morgan EMBI Global Index. The model performance shown is hypothetical and for illustrative purposes only and does not represent the performance of a specific investment product. The performance presented does not reflect the deduction of expenses associated with a fund, such as investment management fees and fund expenses, including sales charges if applicable. Past performance is no guarantee of future results. For illustrative purposes only.



Diversification does not guarantee investment returns and does not eliminate the risk of loss. Diversification among investment options and asset classes may help to reduce overall volatility.

Diversification works

The last 15 years have provided a volatile and tumultuous ride for investors, with multiple natural disasters, numerous geopolitical conflicts and two major market downturns.

Yet despite these difficulties, cash was among the worst performing asset classes shown here. Meanwhile, a well-diversified portfolio of stocks, bonds and other uncorrelated asset classes returned over 6% per year over this time period.

DIVERSIFY TO SMOOTH OUT THE RIDE2


Asset class returns

Source: Barclays, Bloomberg, FactSet, MSCI, NAREIT, Russell, Standard & Poor’s, J.P. Morgan Asset Management.

Large cap: S&P 500, Small cap: Russell 2000, EM Equity: MSCI EME, DM Equity: MSCI EAFE, Comdty: Bloomberg Commodity Index, High Yield: Bloomberg Barclays Global HY Index, Fixed Income: Bloomberg Barclays US Aggregate, REITs: NAREIT Equity REIT Index, Cash: Bloomberg Barclays 1-3m Treasury. The “Asset Allocation” portfolio assumes the following weights: 25% in the S&P 500, 10% in the Russell 2000, 15% in the MSCI EAFE, 5% in the MSCI EME, 25% in the Bloomberg Barclays US Aggregate, 5% in the Bloomberg Barclays 1-3m Treasury, 5% in the Bloomberg Barclays Global High Yield Index, 5% in the Bloomberg Commodity Index and 5% in the NAREIT Equity REIT Index. Balanced portfolio assumes annual rebalancing. Annualized (Ann.) return and volatility (Vol.) represents period of 12/31/03 – 12/31/18. Please see disclosure page at end for index definitions. All data represents total return for stated period. Past performance is not indicative of future returns. Guide to the Markets – U.S. Data are as of December 31, 2018.

|GTM – U.S.

60

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Ann. Vol.

REITs EM Equity REITs EM

EquityFixe d

Inc omeEM

Equity REITs REITs REITs Sma ll Ca p REITs REITs Sma ll

Ca pEM

Equity Ca sh REITs REITs

3 1.6 % 3 4 .5 % 3 5 .1% 3 9 .8 % 5 .2 % 7 9 .0 % 2 7 .9 % 8 .3 % 19 .7 % 3 8 .8 % 2 8 .0 % 2 .8 % 2 1.3 % 3 7 .8 % 1.8 % 8 .5 % 2 2 .4 %

EM Equity Comdty. EM

Equity Comdty. Ca sh High Y ie ld

Sma ll Ca p

Fixe d Inc ome

High Y ie ld

La rge Ca p

La rge Ca p

La rge Ca p

High Y ie ld

DM Equity

Fixe d Inc ome

EM Equity

EM Equity

2 6 .0 % 2 1.4 % 3 2 .6 % 16 .2 % 1.8 % 5 9 .4 % 2 6 .9 % 7 .8 % 19 .6 % 3 2 .4 % 13 .7 % 1.4 % 14 .3 % 2 5 .6 % 0 .0 % 8 .3 % 2 2 .1%

DM Equity

DM Equity

DM Equity

DM Equity

Asse t Alloc .

DM Equity

EM Equity

High Y ie ld

EM Equity

DM Equity

Fixe d Inc ome

Fixe d Inc ome

La rge Ca p

La rge Ca p REITs La rge

Ca pSma ll Ca p

2 0 .7 % 14 .0 % 2 6 .9 % 11.6 % - 2 5 .4 % 3 2 .5 % 19 .2 % 3 .1% 18 .6 % 2 3 .3 % 6 .0 % 0 .5 % 12 .0 % 2 1.8 % - 4 .0 % 7 .8 % 18 .6 %

Sma ll Ca p REITs Sma ll

Ca pAsse t Alloc .

High Y ie ld REITs Comdty. La rge

Ca pDM

EquityAsse t Alloc .

Asse t Alloc . Ca sh Comdty. Sma ll

Ca pHigh Y ie ld

Sma ll Ca p Comdty.

18 .3 % 12 .2 % 18 .4 % 7 .1% - 2 6 .9 % 2 8 .0 % 16 .8 % 2 .1% 17 .9 % 14 .9 % 5 .2 % 0 .0 % 11.8 % 14 .6 % - 4 .1% 7 .5 % 18 .6 %

High Y ie ld

Asse t Alloc .

La rge Ca p

Fixe d Inc ome

Sma ll Ca p

Sma ll Ca p

La rge Ca p Ca sh Sma ll

Ca pHigh Y ie ld

Sma ll Ca p

DM Equity

EM Equity

Asse t Alloc .

La rge Ca p

High Y ie ld

DM Equity

13 .2 % 8 .1% 15 .8 % 7 .0 % - 3 3 .8 % 2 7 .2 % 15 .1% 0 .1% 16 .3 % 7 .3 % 4 .9 % - 0 .4 % 11.6 % 14 .6 % - 4 .4 % 7 .3 % 17 .6 %

Asse t Alloc .

La rge Ca p

Asse t Alloc .

La rge Ca p Comdty. La rge

Ca pHigh Y ie ld

Asse t Alloc .

La rge Ca p REITs Ca sh Asse t

Alloc . REITs High Y ie ld

Asse t Alloc .

Asse t Alloc .

La rge Ca p

12 .8 % 4 .9 % 15 .3 % 5 .5 % - 3 5 .6 % 2 6 .5 % 14 .8 % - 0 .7 % 16 .0 % 2 .9 % 0 .0 % - 2 .0 % 8 .6 % 10 .4 % - 5 .8 % 6 .2 % 14 .5 %

La rge Ca p

Sma ll Ca p

High Y ie ld Ca sh La rge

Ca pAsse t Alloc .

Asse t Alloc .

Sma ll Ca p

Asse t Alloc . Ca sh High

Y ie ldHigh Y ie ld

Asse t Alloc . REITs Sma ll

Ca pDM

EquityHigh Y ie ld

10 .9 % 4 .6 % 13 .7 % 4 .8 % - 3 7 .0 % 2 5 .0 % 13 .3 % - 4 .2 % 12 .2 % 0 .0 % 0 .0 % - 2 .7 % 8 .3 % 8 .7 % - 11.0 % 5 .2 % 11.0 %

Comdty. High Y ie ld Ca sh High

Y ie ld REITs Comdty. DM Equity

DM Equity

Fixe d Inc ome

Fixe d Inc ome

EM Equity

Sma ll Ca p

Fixe d Inc ome

Fixe d Inc ome Comdty. Fixe d

Inc omeAsse t Alloc .

9 .1% 3 .6 % 4 .8 % 3 .2 % - 3 7 .7 % 18 .9 % 8 .2 % - 11.7 % 4 .2 % - 2 .0 % - 1.8 % - 4 .4 % 2 .6 % 3 .5 % - 11.2 % 3 .9 % 10 .3 %

Fixe d Inc ome Ca sh Fixe d

Inc omeSma ll Ca p

DM Equity

Fixe d Inc ome

Fixe d Inc ome Comdty. Ca sh EM

EquityDM

EquityEM

EquityDM

Equity Comdty. DM Equity Ca sh Fixe d

Inc ome4 .3 % 3 .0 % 4 .3 % - 1.6 % - 4 3 .1% 5 .9 % 6 .5 % - 13 .3 % 0 .1% - 2 .3 % - 4 .5 % - 14 .6 % 1.5 % 1.7 % - 13 .4 % 1.3 % 3 .3 %

Ca sh Fixe d Inc ome Comdty. REITs EM

Equity Ca sh Ca sh EM Equity Comdty. Comdty. Comdty. Comdty. Ca sh Ca sh EM

Equity Comdty. Ca sh

1.2 % 2 .4 % 2 .1% - 15 .7 % - 5 3 .2 % 0 .1% 0 .1% - 18 .2 % - 1.1% - 9 .5 % - 17 .0 % - 2 4 .7 % 0 .3 % 0 .8 % - 14 .2 % - 2 .5 % 0 .8 %

2004 - 2018

Asset class returns

Source: Barclays, Bloomberg, FactSet, MSCI, NAREIT, Russell, Standard & Poor’s, J.P. Morgan Asset Management. Large cap: S&P 500, Small cap: Russell 2000, EM Equity: MSCI EME, DM Equity: MSCI EAFE, Comdty: Bloomberg Commodity Index, High Yield: Bloomberg Barclays Global HY Index, Fixed Income: Bloomberg Barclays US Aggregate, REITs: NAREIT Equity REIT Index, Cash: Bloomberg Barclays 1-3m Treasury. The “Asset Allocation” portfolio assumes the following weights: 25% in the S&P 500, 10% in the Russell 2000, 15% in the MSCI EAFE, 5% in the MSCI EME, 25% in the Bloomberg Barclays US Aggregate, 5% in the Bloomberg Barclays 1-3m Treasury, 5% in the Bloomberg Barclays Global High Yield Index, 5% in the Bloomberg Commodity Index and 5% in the NAREIT Equity REIT Index. Balanced portfolio assumes annual rebalancing. Annualized (Ann.) return and volatility (Vol.) represents period of 12/31/03 – 12/31/18. Please see disclosure page at end for index definitions. All data represents total return for stated period. Past performance is not indicative of future returns. Guide to the Markets – U.S. Data are as of December 31, 2018.

60

Inve

stin

gpr

inci

ples

10 GTM - U.S.



REBALANCE TO STAY THE COURSE

Stay on course; don’t “set it and forget it”

As markets shift, so do portfolio allocations. Without rebalancing, investors can gradually become overexposed to unwanted risks. In this simple illustration, over a 20-year period, the 60% equity and 40% fixed income portfolio left untouched drifted to become a 73% equity and 27% fixed income portfolio.

Create a rebalancing policy

Some portfolios are rebalanced according to a set schedule, others after major market moves and still others when assets stray from original targets. What’s most important is creating a formal rebalancing policy and following it faithfully.

3


60%

40%

60%

40%

Fixed Income

Equity

60-40 (Annual rebalancing) 60-40 (Buy and hold)

73%

27%

Fixed Income

Equity

ANNUAL REBALANCE

BUY AND HOLD

5.67%

8.44%

5.30%

8.92%

Average annual return

60-40 (Annual rebalance)

Risk

60-40 (Buy and hold)

0.45% 0.39%

Risk-adjusted return

Using small, targeted correction to stay on course

Source: Morningstar; data as of 12/31/2018. Equity and fixed income are represented by the S&P 500 and Bloomberg Barclays US Aggregate Bond indices, respectively. Risk is measured by standard deviation and risk-adjusted return is represented by the Sharpe ratio. This information is shown for illustrative purposes only, does not reflect actual investment results, is not a guarantee of future results and is not a recommendation.

20 years: 1/1/1999-12/31/2018

60%

40%

60%

40%

Fixed Income

Equity


73%

27%

Fixed Income

Equity

ANNUAL REBALANCE

BUY AND HOLD

5.67%

8.44%

5.30%

8.92%



Risk


0.45% 0.39%


60%

40%

60%

40%

Fixed Income

Equity


73%

27%

Fixed Income

Equity

ANNUAL REBALANCE

BUY AND HOLD

5.67%

8.44%

5.30%

8.92%



Risk


0.45% 0.39%


Rebalancing according to a set schedule helped maintain the 60-40 allocation

Over a 20-year period, the 60-40 portfolio left untouched drifted to become a 73-27% portfolio

Starting portfolio



USE THE 4 Ps FRAMEWORK TO SELECT INVESTMENTS

There are many factors to consider

A framework for selecting investments based on the four Ps can help you better understand what you own and what you should expect:

1. People—Who’s managing the strategy? What are their experiences and capabilities?

2. Philosophy—What is the strategy trying to achieve? For example, is it seeking long-term growth? Current income? A combination of both?

3. Process—How does the strategy pursue its objectives and invest shareholder money?

4. Performance—When would this strategy likely underperform/outperform? How much risk was taken relative to returns?

4


The four Ps framework

M A N A G E RS E L E C T I O N

PEOPLE Who manages the strategy?

How long has the current team been in place?

What is the team’s experience?

What are the team’s capabilities and resources?

PHILOSOPHY What are the core investment beliefs?

What does the strategy seek to do?

How clearly is the investment philosophy conveyed?

Is this a benchmark-aware or -agnostic approach?

PERFORMANCE Is the track record linked to the team and process?

What are the appropriate ways to evaluate performance and risk?

What are the key return/risk drivers?

When would this strategy likely underperform/outperform?

PROCESS How does the team invest to meet its objective?

What is the strategy’s investment style? (i.e. deep value vs. dividend approach)

What are typical portfolio characteristics?

What is the risk management approach?

For illustrative purposes only.

What is the process for identifying and selecting investments for your portfolios?



Big gaps between top and bottom performers

Given the wide array of approaches available, mutual funds and ETFs in the same category may deliver vastly different results. This chart shows average annual returns for the top performers, bottom performers and largest market cap-weighted passive option within each investment category.

In the large value category, for example, the gap between the top and bottom performers was a sizable 3.2% difference in annual return. Compounded over time, this can have a big impact on a portfolio’s dollar value.

5 CHOOSING THE APPROPRIATE INVESTMENT IS KEY


Top performers

Bottom performers

Market cap-weighted ETF

8.47%

5.20%

12.39%

9.18%

IWD 10.99% (48th percentile)

7.66%

4.29%

EFA 6.20% (40th percentile)5.68%

3.07%AGG 3.30% (80th percentile)

3.2%

0%

2%

4%

6%

8%

10%

12%

14%

Large Value Foreign LargeBlend

Intermediate TermBond

World Allocation

There can be a huge separation between top and bottom performers

Source: Morningstar as of 12/31/2018. *Represents average annual portfolio return dispersion between the 10th and 90th percentile over a 10-year period for each Morningstar category that includes both ETFs and Mutual Funds. The ETFs listed above are the largest by AUM within their category. World Allocation not shown as it does not currently have any prevalent ETFs with significant AUM. ETF shares are bought and sold throughout the day on an exchange at market price (not NAV) through a brokerage account, and are not individually redeemed from the fund. ETFs and Mutual Funds are different investment vehicles. ETFs are funds that trade like other publicly traded securities. Similar to shares of an index mutual fund, each ETF share represents an ownership interest in an underlying portfolio of securities and other instruments typically intended to track a market index. Unlike shares of a mutual fund, shares of an ETF may be bought and sold intraday. This information is shown for illustrative purposes only, does not reflect actual investment results, is not a guarantee of future results and is not a recommendation. The performance quoted is past performance and is not a guarantee of future results. Mutual funds are subject to certain market risks. Investment returns and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than original cost. Current performance may be higher or lower than the performance data shown. For additional information & performance current to the most recent month-end for the three ETFs referenced herein; please visit www.ishares.com.

10-year portfolio return dispersion*



LOOK BEYOND TOTAL RETURNS

Dig deeper into performance

Of the four Ps, investors tend to focus most closely on performance. But evaluating performance involves much more than simply looking at recent returns. Other factors to consider include consistency, risk and performance relative to benchmarks and peers.

This page summarizes some of the metrics commonly used to gain a deeper understanding of performance. Along with guidance from a financial advisor, they can help investors assess investments, compare similar strategies and make informed decisions.

6


Different ways to evaluate performance and risk

RETURN

Alpha/excess return• Reflects a strategy’s total return above or

below a benchmark

Trailing total return• Represents a strategy’s gains/losses over a

specified period of time

CONSISTENCY

Batting average• Measures a strategy’s ability to meet or beat

the benchmark consistently

Rolling statistics• Measures a strategy’s ability to deliver

consistency of performance versus peers’ benchmarks

RISK

Up/down capture analysis• Measures the percentage of the benchmark’s

return that a strategy “captured” in rising and falling markets

Beta• Measures a strategy’s sensitivity to the market;

the beta of the market is 1.00 by definition

Standard deviation• Volatility of total returns

SIMILARITY RISK-ADJUSTED

Correlation• Describes the directionality of price movements

of two securities or asset classes in relation to each other

R-squared• Reflects the percentage of a strategy’s movements

that can be explained by movements in its benchmark

Sharpe ratio• Measures a strategy’s risk-adjusted performance

relative to the risk-free rate

Information ratio• Measures a strategy’s risk-adjusted performance

relative to the benchmark

Definitions of key measures



PUT IT ALL TOGETHER

The whole is greater than the sum of its parts

Portfolio construction and investment selection is an ongoing process. To build a portfolio that can withstand market ups and downs, all six components in the process must work together to achieve the desired result. Investors should also understand how these six components inform the overall process and the essential roles they play in building stronger portfolios.

7


Portfolio construction process

START with an asset allocation plan

DIVERSIFY to smooth out the ride

REBALANCE to stay the course

CHOOSING the appropriate investment is key

USE THE 4Ps framework to select investments

LOOK beyond total returns 26

35

4

1

PORTFOLIO CONSTRUCTION

PROCESS

For illustrative purposes only.


DISCLOSURE | Competitor objectives, investment strategy, risk, performance and expenses as of 9/30/2019

FUND OBJECTIVE STRATEGY FUND RISKS 1

YEAR3

YEARS5

YEARS10

YEARSGROSS

EXPENSE RATIO

iShares Russell 1000 Value ETF

The ETF seeks to track investment results of an index composed of large and mid capitalization U.S. equities that exhibit value characteristics.

The Fund seeks to track the investment results of the Russell 1000® Value Index (the “Underlying Index”), which meas-ures the performance of large and mid capitalization value sectors of the U.S. equity market. It is a subset of the Russell 1000® Index, which measures the performance of the large and mid capitalization sector of the U.S. equity market. As of March 31, 2016, the Underlying Index represented approximately 62% of the total market value of the Russell 1000 Index. BFA uses a “passive” or indexing approach to try to achieve the Fund’s investment objective. Unlike many invest-ment companies, the Fund does not try to “beat” the index it tracks and does not seek temporary defensive positions when markets decline or appear overvalued.


Asset class, authorized participant concentration, concentration, energy sector, equities securities, financials sector, health care sector, index-re-lated, Information technology sector, issuer, large cap companies, management, market, market trading, operational, passive investment, risk of investing in developed countries, securities lending, tracking error and value securities risks.

Returns at NAV 3.85% 9.25% 7.62% 11.26%

0.19%

Market Price Returns 3.85% 9.26% 7.61% 11.27%

iShares MSCI EAFE ETF

The iShares MSCI EAFE ETF seeks to track the investment results of an index composed of large and mid capitalization developed market equities, excluding the U.S. and Canada.

The Fund seeks to track the investment results of the MSCI EAFE Index (the “Underlying Index”), which has been developed by MSCI Inc. (the “Index Provider” or “MSCI”) as an equity benchmark for international stock performance. The Underlying Index includes stocks from Europe, Australasia and the Far East and, as of June 30, 2016, consisted of securities from the following 21 developed market countries or regions: Australia, Austria, Belgium, Denmark, Finland, France, Germany, Hong Kong, Ireland, Israel, Italy, Japan, the Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland and the United Kingdom. BFA uses a “passive” or indexing approach to try to achieve the Fund’s investment objective. Unlike many investment companies, the Fund does not try to “beat” the index it tracks and does not seek temporary defensive positions when markets decline or appear overvalued.


Asset class, assets under management (AUM), authorized participant concentration, concentration, consumer staples sector, currency, cyber security, equity securities, financial sector, geographic, index- related, industrials sector, issuer, large capitalization companies, management, market, market trading, mid capitalization companies, national closed market trading, non-U.S. securities, operational, passive investment, privatization, reliance on trading partners, risk of investing in developed countries, risk of investing in Japan, securities lending, security, tracking error and valuation risks.

Returns at NAV -1.40% 6.42% 3.21% 4.82%

0.31%

Market Price Returns -1.00% 6.39% 3.27% 4.84%

iShares Core US Aggregate Bond ETF

The iShares Core U.S. Aggregate Bond ETF seeks to track the invest-ment results of an index composed of the total U.S. investment-grade bond market.

The Fund seeks to track the investment results of the Bloomberg Barclays U.S. Aggregate Bond Index (the “Under-lying Index”), which measures the performance of the total U.S. investment-grade bond market. As of December 31, 2015, there were 9,720 issues in the Underlying Index. BFA uses a “passive” or indexing approach to try to achieve the Fund’s investment objective. Unlike many investment companies, the Fund does not try to “beat” the index it tracks and does not seek temporary defensive positions when markets decline or appear overvalued.


Asset class, authorized participant concentration, call, concentration, credit, custody, cyber security, extension, geographic, high portfolio turnover, income, index-related, industrials sector, interest rate, issuer, liquidity, management, market, mortgage-backed securities, national closed market trading, North American economic, operational, passive investment, prepayment, securities lending, tracking error, U.S. Treasury obligations risks and risk of investing in developed countries and the U.S.

Returns at NAV 10.27% 2.89% 3.33% 3.64%

0.06%


The performance quoted is past performance and is not a guarantee of future results. Investment returns and principal value of an investment will fluctuate so that an investor’s shares, when sold or redeemed, may be worth more or less than original cost. Current performance may be higher or lower than the performance data shown. Refer to each fund prospectus for additional information. ETFs and Mutual Funds are different investment vehicles. ETFs are funds that trade like other publicly traded securities. Similar to shares of an index mutual fund, each ETF share represents an ownership interest in an underlying portfolio of securities and other instruments typically intended to track a market index. Unlike shares of a mutual fund, shares of an ETF may be bought and sold intraday. Market cap-weighted passive strategies may have lower turnover than actively managed strategies, which can impact potential capital gains distributions and therefore tax considerations. The inherent structure of ETFs in general may also be more tax efficient than that of mutual funds. Please consult an investment or tax professional for more information. For additional information & performance current to the most recent month-end for the three ETFs referenced herein; please visit www.ishares.com.


DISCLOSURE | Competitor objectives, investment strategy, risk, performance and expenses as of 9/30/2019 – Continued

FUND OBJECTIVE STRATEGY FUND RISKS 1

YEAR3

YEARS5

YEARS10

YEARSGROSS

EXPENSE RATIO


The ETF seeks to track investment results of an index composed of large and mid capitalization U.S. equities that exhibit value characteristics.

The Fund seeks to track the investment results of the Russell 1000® Value Index (the “Underlying Index”), which meas-ures the performance of large and mid capitalization value sectors of the U.S. equity market. It is a subset of the Russell 1000® Index, which measures the performance of the large and mid capitalization sector of the U.S. equity market. As of March 31, 2016, the Underlying Index represented approximately 62% of the total market value of the Russell 1000 Index. BFA uses a “passive” or indexing approach to try to achieve the Fund’s investment objective. Unlike many invest-ment companies, the Fund does not try to “beat” the index it tracks and does not seek temporary defensive positions when markets decline or appear overvalued.


Asset class, authorized participant concentration, concentration, energy sector, equities securities, financials sector, health care sector, index-re-lated, Information technology sector, issuer, large cap companies, management, market, market trading, operational, passive investment, risk of investing in developed countries, securities lending, tracking error and value securities risks.

Returns at NAV 3.85% 9.25% 7.62% 11.26%

0.19%



The iShares MSCI EAFE ETF seeks to track the investment results of an index composed of large and mid capitalization developed market equities, excluding the U.S. and Canada.

The Fund seeks to track the investment results of the MSCI EAFE Index (the “Underlying Index”), which has been developed by MSCI Inc. (the “Index Provider” or “MSCI”) as an equity benchmark for international stock performance. The Underlying Index includes stocks from Europe, Australasia and the Far East and, as of June 30, 2016, consisted of securities from the following 21 developed market countries or regions: Australia, Austria, Belgium, Denmark, Finland, France, Germany, Hong Kong, Ireland, Israel, Italy, Japan, the Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland and the United Kingdom. BFA uses a “passive” or indexing approach to try to achieve the Fund’s investment objective. Unlike many investment companies, the Fund does not try to “beat” the index it tracks and does not seek temporary defensive positions when markets decline or appear overvalued.


Asset class, assets under management (AUM), authorized participant concentration, concentration, consumer staples sector, currency, cyber security, equity securities, financial sector, geographic, index- related, industrials sector, issuer, large capitalization companies, management, market, market trading, mid capitalization companies, national closed market trading, non-U.S. securities, operational, passive investment, privatization, reliance on trading partners, risk of investing in developed countries, risk of investing in Japan, securities lending, security, tracking error and valuation risks.

Returns at NAV -1.40% 6.42% 3.21% 4.82%

0.31%

Market Price Returns -1.00% 6.39% 3.27% 4.84%


The iShares Core U.S. Aggregate Bond ETF seeks to track the invest-ment results of an index composed of the total U.S. investment-grade bond market.

The Fund seeks to track the investment results of the Bloomberg Barclays U.S. Aggregate Bond Index (the “Under-lying Index”), which measures the performance of the total U.S. investment-grade bond market. As of December 31, 2015, there were 9,720 issues in the Underlying Index. BFA uses a “passive” or indexing approach to try to achieve the Fund’s investment objective. Unlike many investment companies, the Fund does not try to “beat” the index it tracks and does not seek temporary defensive positions when markets decline or appear overvalued.


Asset class, authorized participant concentration, call, concentration, credit, custody, cyber security, extension, geographic, high portfolio turnover, income, index-related, industrials sector, interest rate, issuer, liquidity, management, market, mortgage-backed securities, national closed market trading, North American economic, operational, passive investment, prepayment, securities lending, tracking error, U.S. Treasury obligations risks and risk of investing in developed countries and the U.S.

Returns at NAV 10.27% 2.89% 3.33% 3.64%

0.06%


The performance quoted is past performance and is not a guarantee of future results. Investment returns and principal value of an investment will fluctuate so that an investor’s shares, when sold or redeemed, may be worth more or less than original cost. Current performance may be higher or lower than the performance data shown. Refer to each fund prospectus for additional information. ETFs and Mutual Funds are different investment vehicles. ETFs are funds that trade like other publicly traded securities. Similar to shares of an index mutual fund, each ETF share represents an ownership interest in an underlying portfolio of securities and other instruments typically intended to track a market index. Unlike shares of a mutual fund, shares of an ETF may be bought and sold intraday. Market cap-weighted passive strategies may have lower turnover than actively managed strategies, which can impact potential capital gains distributions and therefore tax considerations. The inherent structure of ETFs in general may also be more tax efficient than that of mutual funds. Please consult an investment or tax professional for more information. For additional information & performance current to the most recent month-end for the three ETFs referenced herein; please visit www.ishares.com.


NOTESNOTES


NOTESNOTES


NOTESNOTES

FOR MORE INFORMATION ABOUT THE PORTFOLIO INSIGHTS PROGRAM, PLEASE VISIT: jpmorganfunds.com/insights

This document is a general communication being provided for informational purposes only. It is educational in nature and not designed to be a recommendation for any specific investment product, strategy, plan feature or other purposes. By receiving this communication you agree with the intended purpose described above. Any examples used in this material are generic, hypothetical and for illustration purposes only. None of J.P. Morgan Asset Management, its affiliates or representatives is suggesting that the recipient or any other person take a specific course of action or any action at all. Communications such as this are not impartial and are provided in connection with the advertising and marketing of products and services. Prior to making any investment or financial decisions, an investor should seek individualized advice from personal financial, legal, tax and other professional advisors that take into account all of the particular facts and circumstances of an investor’s own situation.

This material has been prepared for informational and educational purposes only. It is not intended to provide, and should not be relied upon for, investment, accounting, legal or tax advice.

Opinions and estimates offered constitute our judgment and are subject to change without notice, as are statements of financial market trends, which are based on current market conditions. We believe the information provided here is reliable, but do not warrant its accuracy or completeness. References to future returns are not promises or even estimates of actual returns a client portfolio may achieve.

JPMorgan Distribution Services, Inc., member FINRA.

J.P. Morgan Asset Management is the marketing name for the asset management business of JPMorgan Chase & Co., and its affiliates worldwide.

© 2019 JPMorgan Chase & Co. All rights reserved

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