ETF Providers Tap the Brightest Minds to Develop New Strategies

Exchange traded fund providers have partnered up with seasoned money managers in developing new strategies to help investors enhance their portfolios.

“John Hancock is and operates as a managers of managers model, and so essentially we are going out to find the absolute best advisors for each one of the asset classes we are looking to fill. When it came to ETFs, we wanted to find the absolute best multi-factor manager, and just so happened, we have been working with Dimensional for 12 years already, so it was a perfect match between the two,” Michelle Fuller, Senior Managing Director and Head of ETF Distribution at John Hancock Investments, said at the Charles Schwab IMPACT 2018 conference.

The John Hancock Multifactor ETFs track indices developed by Dimensional Fund Advisors, which act as the subadvisor to the funds. They launched a number of ETFs, including 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, to help investors to overweight targeted areas of the market.

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.

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.

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