John Hancock partnered up with Dimensional Fund Advisors to expand on its line of smart beta ETFs with a new emerging market multi-factor strategy that could help investors access the developing economies through a time-tested, diversified approach.
John Hancock recently launched the John Hancock Multifactor Emerging Markets ETF (NYSEArca: JHEM), which has a 0.55% expense ratio.
The John Hancock Multifactor Emerging Markets ETF 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, according to the ETF’s prospectus.
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.
Employing Momentum Screens
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.
JHEM may include exposure to Brazil, Chile, China, Colombia, the Czech Republic, Egypt, Greece, Hungary, India, Indonesia, Malaysia, Mexico, Peru, the Philippines, Poland, Qatar, Russia, South Africa, South Korea, Taiwan, Thailand, Turkey and the United Arab Emirates.
For more information on new fund products, visit our new ETFs category.