Investors should not ignore the emerging markets as these economies could still outpace the developed world. While this segment of the world has been pummeled, investors may look to smart beta exchange traded funds to tap into the growth potential of the developing markets and diminish downside risks.
On the upcoming webcast, Emerging Markets: When the time is right, will you be ready?, Matthew Miskin, Market Strategist at John Hancock Investments; Will Creedon, Director of ETF Capital Markets at John Hancock Investments; and Joe Hohn, Portfolio Manager for Dimensional Fund Advisors, will outline the case for investing in emerging-market stocks and consider the merits of a multifactor, smart beta approach subadvised by Dimensional Fund Advisors to access this market segment.
Specifically, the recently launched John Hancock Multifactor Emerging Markets ETF (NYSEArca: JHEM) tries to reflect the performance of the John Hancock Dimensional Emerging Markets Index, which tracks emerging market stocks and weights the securities on a rules-based process that may be referred to as multi-factor investing or smart beta.
The underlying index weights screens components based on smaller market capitalizations; lower relative price as defined by price-to-book; and higher profitability as defined by operating income over book. Companies that exhibit these characteristics will generally receive an increased weight relative to their unadjusted weight.
The portfolio includes momentum screens where low momentum securities are flagged for no additional buys. Small weight changes are implemented to avoid making changes that do not meaningfully improve the expected return-and-risk profile of the overall index. Lastly, the index includes an enhanced redistribution, which allows proceeds to be allocated to increase factor exposure and potentially reduce turnover when sizable securities are removed.
Through its indexing methodology, the ETF tries to incorporate measured flexibility during reconstitution to maintain focus while balancing the trade-offs among competing premiums. The approach is designed to maintain focus on the asset class and factors, control for unnecessary turnover and minimize unnecessary trading costs.
Financial advisors who are interested in learning more about the emerging market opportunities can register for the Thursday, October 11 webcast here.