Many have utilized sector plays to better control their portfolio exposure to varying market conditions. With exchange traded funds, investors can utilize smart-beta or multi-factor strategies to better diversify their sector exposure and potentially enhance returns.
In the upcoming webcast, A Smart (Beta) Approach to Sector ETFs, Joel Schneider, Senior Portfolio Manager & Vice President of Dimensional Fund Advisors, and Steve Deroian, Head of ETF Strategy at John Hancock Investments, will take a closer look at the Dimensional Fund Advisors methodology and the multi-factor sector ETFs that employ the strategies.
Specifically, the sector-specific smart-beta ETF options include the 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).[related_stories]
The smart-beta indices follow a rules-based selection process that may be seen as a multi-factor approach.
For starters, underlying securities are adjusted by relative price and profitability. 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.
The index strategy also implements market-capitalization adjustments where it increases the weights of smaller companies within the eligible universe and reduces the weights of larger names. The weighting methodology suggests that the ETFs may follow a more equal-weight tilt with a greater tilt toward smaller companies than traditional market-cap weighted index funds.
According to academic research, these small capitalization, 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 factor-based, smart-beta sector investments can register for the Tuesday, September 20 webcast here.