- Glimpse given into the factor selection process behind the new suite of John Hancock smart-beta ETFs
- Why focusing on smaller stocks and those with lower relative prices may improve a portfolio’s expected return
- In an attempt to capitalize off these factors, John Hancock has come out with six smart-beta ETF options track indices
Smart-beta exchange traded funds that track alternative indexing methodologies help tap into a different way of thinking when it comes to investing, enabling investors to diversify and add value to their portfolios.
For instance, on the recent webcast, Multifactor Investing in a Volatile Market: What’s Your Strategic Beta Plan?, Karen Umland, Head of Investment Strategies Group and Senior Portfolio Manager & Vice President of Dimensional Fund Advisors, explained the factor selection process behind the new suite of John Hancock smart-beta ETFs.
“Academic research supports the hypothesis that prices reflect all available information; however, different stocks have been shown over time to have different expected returns,” Umland said.
Specifically, Umland pointed out that a study conducted by University of Chicago Professor Eugene Fama and Dartmouth College Professor Kenneth French found that focusing on smaller stocks and those with lower relative prices may improve a portfolio’s expected return.
Additionally, in a separate research, University of Rochester Professor Robert Novy-Marx identified profitability as another factor that enhances expected returns.
“A factor-based index should provide a diversified investment solution for clients seeking higher expected returns than conventional benchmarks,” Umland said.