Phil Fontana, Head of Product Development at John Hancock Investments, explained that in an attempt to capitalize off these factors, John Hancock has launched a suite of smart-beta ETFs that track indices developed by Dimensional Fund Advisors, including the John Hancock Multifactor Large Cap ETF (NYSEArca: JHML) and John Hancock Multifactor Mid Cap ETF (NYSEArca: JHMM), along with sector-specific John Hancock Multifactor Consumer Discretionary ETF (NYSEArca: JHMC), John Hancock Multifactor Financials ETF (NYSEArca: JHMF), John Hancock Multifactor Healthcare ETF (NYSEArca: JHMH), John Hancock Multifactor Technology ETF (NYSEArca: JHMT), John Hancock Multifactor Consumer Staples ETF (NYSEArca: JHMS), John Hancock Multifactor Energy ETF (NYSEArca: JHME), John Hancock Multifactor Industrials ETF (NYSEArca: JHMI), John Hancock Multifactor Materials ETF (NYSEArca: JHMA) and John Hancock Multifactor Utilities ETF (NYSEArca: JHMU).
The smart-beta ETFs’ underlying indices select components based on company size where a premium is given on smaller companies over larger companies, relative price where value stocks are selected over growth and profitability where more profitable companies are overweight.
The underlying indices adjust securities by relative price and profitability. The smart-beta indices 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 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.
Among financial advisors who are still on the fence over smart beta strategies, 43% of those surveyed don’t fully understand the approach and 27% said the strategies are too complicated, which suggests that the ETF industry still has room to continue educating investors about the potential benefits of factor or alternative index-based ETFs.
Financial advisors who are interested in learning more about multifactor, smart beta strategies can watch the webcast here on demand.