ETF Trends
ETF Trends
  • Webcast this Tuesday to explain types of smart-beta strategies
  • Investors who want to capitalize on these alternative index-based ETFs should fully understand what they are getting themselves into
  • The one-hour session will provide best practices for incorporating strategic-beta ETFs into a portfolio

Smart-beta or factor-based strategies have quickly gained traction in the exchange traded fund universe. Investors who want to capitalize on these alternative index-based ETFs should fully understand what they are getting themselves into.

On the upcoming webcast, Multifactor Investing in a Volatile Market: What’s Your Strategic Beta Plan?, Phil Fontana (pictured above), Head of Product Development at John Hancock Investments, and Karen Umland, Head of Investment Strategies Group and Senior Portfolio Manager & Vice President of Dimensional Fund Advisors, help explain who might be best suited for these types of smart-beta strategies and provide best practices for incorporating strategic-beta ETFs into a portfolio.

For instance, John Hancock has six smart-beta ETF options to choose from, including the John Hancock Multifactor Large Cap ETF (NYSEArca: JHML), John Hancock Multifactor Mid Cap ETF (NYSEArca: JHMM), John Hancock Multifactor Consumer Discretionary ETF (NYSEArca: JHMC), John Hancock Multifactor Financials ETF (NYSEArca: JHMF), John Hancock Multifactor Healthcare ETF (NYSEArca: JHMH) and John Hancock Multifactor Technology ETF (NYSEArca: JHMT).

Each of the new John Hancock Multifactor ETFs track indices developed by Dimensional Fund Advisors, which will act as the subadvisor to the funds.

The smart-beta indices follow a rules-based selection process that may be seen as a multi-factor approach. Securities are adjusted by relative price and profitability. Specifically, the underlying index may overweight stocks with lower relative prices and underweight names with higher relative prices. The index can also adjust for profitability by overweighting stocks with higher profitability and underweighting those with lower profitability.

Additionally, the underlying index implements market-capitalization adjustments where it increases the weights of smaller companies within the eligible universe and decreases the weights of larger names. The weighting methodology suggests that the ETFs may follow a more equal-weight tilt with greater exposure to smaller companies than traditional market-cap weighted index funds.

According to academic research, these smaller cap, lower relative price and higher profitability factors used in crafting the underlying smart-beta indices have been linked to higher expected returns.

Financial advisors who are interested in learning more about John Hancock’s smart-beta ETF strategies can register for the Tuesday, March 15 webcast here.