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.
JHML’s top sector weights include information technology 19.9%, financials 14.5% and consumer discretionary 13.0%. Top holdings include Apple (NasdaqGS: AAPL) 2.8%, Microsoft (NasdaqGS: MSFT) 1.5% and Alphabet (NasdaqGS: GOOGL) 1.2%.
JHMM’s top sector weights include information technology 17.7%, financials 15.5% and industrials 15.4%. Top components include Western Digital (NasdaqGS: WDC) 0.5%, Lam Research Corp (NasdaqGS: LRCX) 0.5% and CR Bard Inc (NYSE: BCR) 0.4%.
Financial advisors who are interested in learning more about factor-based, smart beta ETF strategies can register for the Tuesday, August 15 webcast here.