2005: Why then?

Twenty years ago, clients were looking for active equity strategies that could provide higher alpha. They had two options: achieve high active share through concentration or look for creative solutions.

J.P. Morgan Asset Management’s approach to fundamental research was unique at the time: Beginning in 1987 we established a consistent process to evaluate stocks across all sectors and built a deep team of career research analysts enabling them to cover the entire index. This empowered analysts to have views not only on the stocks they liked, or wanted to overweight, but also stocks that looked relatively unattractive and wanted to underweight or even short. Leaning on our global fundamental research platform, J.P. Morgan Asset Management sought to solve this client need by launching the U.S. Large Cap Core Plus Fund. This Fund was designed to provide high active share, driving potentially higher alpha, with more diversification and reasonable tracking error. We achieve this by utilizing our career research analysts’ insights on the entire investable universe to gain both long and short exposure, which allows for more flexibility.

2025: Why now?

Today, clients are still seeking active equity strategies to provide higher alpha. With a strong track record of outperformance and many lessons learned over the last 20 years, the U.S. Large Cap Core Plus Fund is positioned to continue to provide a differentiated value proposition as the investment world normalizes. In particular, this Fund provides a unique opportunity to help clients navigate the following themes:

1. A more normal interest rate environment: For the last decade, the low interest rate environment created abnormally low hurdle rates for companies. This led to valuation distortions, which are a headwind to fundamental bottom-up research processes. As we enter a more normalized interest rate environment, companies that cannot adjust to the higher hurdle rate based on higher cost of capital and implement capital discipline will struggle. Our long-term, bottom-up research focus, coupled with the ability to short stocks, can take advantage of emerging stock-specific differentiation within sectors to seek to generate additional alpha for clients.
2. S&P 500 Index concentration: In order for an active manager to deliver alpha, they must take differentiated positions versus the index, measured by active share. As of 8/27/25, the top 10 companies in the S&P 500 Index made up 39.6% of the market cap, and there are only 12 companies with a weight over 1% (Exhibit 1). This all-time high index concentration makes it more difficult to achieve high active share because most managers have to make the dichotomous decision to either overweight the largest stocks or underweight the largest stocks. If overweight the largest stocks, there is limited additional capital to allocate to the rest of the index. If underweight the largest stocks, unintended risks – such as style, sector and size risks – may be introduced to the portfolio. The U.S. Large Cap Core Plus Fund provides several unique tools to handle market concentration:
   • Diversification: Holding ~250 companies limits concentration risk and generates reasonable tracking error.
   • Extension portfolio: The market neutral long/short portfolio creates an additional 60% gross exposure to the market, enabling higher active share without the need to outright underweight the Top 10 stocks.
   • Shorting: Allows for enhanced alpha potential from both shorting underperforming companies based on analyst insights and the ability to take larger underweight bets.

3. Moderating equity returns: Over the last 10 years as of 6/30/25, the S&P 500 Index returned 13.7% annualized, yet our 2024 long-term capital market assumptions for U.S. large cap equities is an annualized return of 6.7% for the next decade. As we anticipate moderating equity market returns, alpha generation, in addition to market beta, may be necessary to enable clients to reach their investment goals. The U.S. Large Cap Core Plus Fund is a solution for clients looking for additional alpha potential, while maintaining a beta of one to the market and reasonable tracking error.

What is the U.S. Large Cap Core Plus Fund?

The U.S. Large Cap Core Plus Fund was developed to maximize the impact of our fundamental bottom-up research process on client portfolios by providing 160% gross and 100% net exposure, while maintaining a beta one exposure to the S&P 500 Index.

For every $1.00 invested in the U.S. Large Cap Core Plus Fund, a client effectively puts $1.60 to work. We achieve this by fully investing 100% of client assets, then shorting 30% of the portfolio, which funds another 30% long, extending potential portfolio returns. High active share is achieved by utilizing the extension portfolio to further differentiate the portfolio from the index.

The U.S. Large Cap Core Plus Fund has delivered

By maximizing the impact of our research platform, the U.S. Large Cap Core Plus Fund has been able to generate first percentile excess return with reasonable tracking error, resulting in first percentile information ratio since inception. The breadth of our research platform and focus on managing risk continue to enable our portfolio managers to generate best-in-class, risk-adjusted returns for clients over time.