Not too big and not too small, the middle-capitalization exchange traded fund category helps investors hone in developing opportunities in the equity market without the risks associated with smaller-sized companies.
On the upcoming webcast, Discover the Sizable Opportunity in Mid Caps, Matt Miskin, Market Strategist for John Hancock Investments, Michelle Fuller, Head of ETF Distribution for John Hancock Investments, Joel Schneider, Senior Portfolio Manager for Dimensional Fund Advisors, will outline the case for mid-cap stocks and consider the merits of a multifactor smart beta approach sub-advised by Dimensional Fund Advisors to access this segment of the market.
Mid-cap companies are slightly more diversified than their small-cap peers, which allows many mid-sized companies to generate more consistent revenue and cash flow, along with providing more stable stock prices. Additionally, they are not so big that their size would slow down growth.
As investors look over their equity market exposure, investors may find that large-cap stock positions are too big for rapid growth and small-caps may expose them to more volatile short-term moves, but middle capitalization stocks and related ETFs may be just right. Middle capitalization stocks, or sometimes referred to as the market’s sweet spot, could help investors achieve improved risk-adjusted returns.
To help investors gain exposure to the mid-cap category, the John Hancock Multifactor Mid Cap ETF (NYSEArca: JHMM), which tracks a factor-based index developed by Dimensional Fund Advisors, follows a rules-based selection process that is seen as a multi-factor approach, combining a number of factors in a single portfolio to help investors gained improved risk-adjusted exposure to the mid-cap market segment.
The smart beta ETF’s underlying index adjusts security weights 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.
JHMM follows a “time-tested multifactor approach, emphasizing factors (smaller cap, lower relative price, and higher profitability) that academic research has linked to higher expected returns,” according to John Hancock.
JHMM’s top sector weights include information technology 17.4%, industrials 15.8%, financials 15.2%, consumer discretionary 12.4% and health care 9.4%. In comparison, the benchmark S&P MidCap 400 Index is more overweight financials, real estate and materials when compared to the smart beta JHMM portfolio.
Financial advisors who are interested in learning more about the middle capitalization category can register for the Tuesday, Ma 8 webcast here.