Investors who want to build a diversified portfolio to grow their wealth can now look to alternative or factor-based index ETF strategies to focus on investment opportunities across a number of equity market categories.
On the upcoming webcast (available live and on demand for CE Credit), A Practical Guide to Portfolio Construction, John Bryson, Head of Portfolio Consulting for John Hancock Investments, and Steve Deroian, Head of ETF Strategy at John Hancock Investments, will discuss new research in equity portfolio construction.
As the financial industry comes out with new and innovative ways for investors to access the markets, many will have to reconsider the way they build a traditional mix of equity and fixed-income assets.
Among the new breed of investment strategies now available, smart beta or alternative passive index-based funds, like John Hancock’s broad smart-beta ETFs, can now be used to fill out a core portfolio position. For example, the John Hancock Multifactor Large Cap ETF (NYSEArca: JHML) and John Hancock Multifactor Mid Cap ETF (NYSEArca: JHMM), along with a suite of multifactor sector-specific ETF strategies, allow investors to overweight targeted areas of the market.
The John Hancock Multifactor ETFs track indices developed by Dimensional Fund Advisors, which act as the subadvisor to the funds.
The smart-beta ETFs follow a rules-based selection process that is seen as a multi-factor approach, combining a number of factors in a single portfolio. Securities are adjusted by relative price and profitability. The underlying indices may overweight stocks with lower relative prices and underweight names with higher relative prices. The indices can also adjust for profitability by overweighting stocks with higher profitability and underweighting those with lower profitability.
Related: Money Managers Tap Academic Research to Craft Enhanced ETF Strategies
The underlying indices also implement market-capitalization adjustments where they increase the weights of smaller companies within the eligible universe and decrease the weights of larger names. The weighting methodology help the ETFs follow a more equal-weight tilt with greater exposure to smaller companies than traditional market-cap weighted index funds in an attempt to capture the size premium and limit risks associated with high-flying, large-cap stocks that may be overbought in an ongoing bull market rally.
The new class of smart beta ETFs offer investors the ability to revamp core portfolio positions with strategies that potentially enhance returns and diminish drawdowns to generate improved risk-adjusted returns. Investors may completely replace traditional positions with these smart beta products or simply augment current positions with a smart beta tilt.
Financial advisors who are interested in learning more about portfolio construction can register for the Thursday, November 2 webcast here.