A Multi-Factor Smart Beta ETF Mid-Cap Idea

Smart beta is one of the fastest-growing segments in the exchange traded funds universe and within that realm, multi-factor ETFs are increasingly popular.

Over the past few years, money managers and fund sponsors started to roll out rules-based, transparent index ETFs that combined some of the attributes that have historically provided active managers with outperformance, such as prominent investment factors like quality, momentum, value, low volatility and size.

Among mid-cap ETFs, the John Hancock Multifactor Mid Cap ETF (NYSEArca: JHMM) is a compelling multi-factor idea.

Indexes used by Hancock ETFs use 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.

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 and provide more stable stock prices. Additionally, they are not so big that their size would slow down growth.