Many advisors ask how strategic beta differs from pure beta and active funds. Strategic beta exchange traded fund strategies have attracted greater investment interest through dynamic rules-based methodologies that foundations for actively managed styles captured in a low-cost index-based wrapper.
On the upcoming webcast, A New Way to Think About Strategic Beta, Steve Deroian, Head of ETF Strategy for John Hancock Investments, and Will Creedon, Director of Capital Markets for John Hancock Investments, will discuss an approach that is closer to financial advisors’ current investment process than one might think.
Financial advisors and money managers may employ a number of technical or fundamental investment styles to manage client portfolios, and these same active management styles may be found in passive, index-based smart beta ETF strategies.
For example, John Hancock offers broad smart-beta ETFs to fill out a core portfolio position, including the John Hancock Multifactor Large Cap ETF (NYSEArca: JHML), along with a suite of multifactor sector-specific ETF strategies for investors seeking to overweight targeted areas of the market.
The John Hancock Multifactor ETFs track indices developed by Dimensional Fund Advisors, which will act as the subadvisor to the funds.
As opposed to traditional cap-weighted indices, which may also expose investors to other fundamental risks since the weighting methodology would attach more weight toward indebted countries or companies, a multi-factor benchmark attempts to avoid such problems. Alternatively, the smart beta, multi-factor benchmarks frequently use factors like value, growth, quality and low volatility to diminish risks and potential enhance returns.
The underlying smart-beta index follows a rules-based selection process that is seen as a multi-factor approach or a combination of individual factors. For instance, 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.
Additionally, the underlying indices 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 suggests that the ETFs will follow a more equal-weight tilt with greater exposure to smaller companies than traditional market-cap weighted index funds.
Financial advisors who are interested in learning more about strategic beta or smart beta strategies can register for the Tuesday, June 13 webcast here.