Smart beta, or factor-based, exchange-traded funds that follow customized indexing methodologies have quickly grown in popularity across a range of investment applications, and no two factor-based investments are alike. Consequently, it’s important for prospective investors to familiarize themselves with the different approaches.
On the upcoming webcast, Smart Beta Explained: What You Need to Know for 2019, Ryan Wellman, Product Manager at John Hancock Investments, and Joe Hohn, Portfolio Manager for Dimensional Fund Advisors, will delve into the world of factor-based investment strategies.
For example, 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.
Sector-specific, smart beta ETFs include the John Hancock Multifactor Consumer Discretionary ETF (NYSEArca: JHMC), John Hancock Multifactor Financials ETF (NYSEArca: JHMF), John Hancock Multifactor Healthcare ETF (NYSEArca: JHMH), John Hancock Multifactor Technology ETF (NYSEArca: JHMT), John Hancock Multifactor Consumer Staples ETF (NYSEArca: JHMS), John Hancock Multifactor Energy ETF (NYSEArca: JHME), John Hancock Multifactor Industrials ETF (NYSEArca: JHMI), John Hancock Multifactor Materials ETF (NYSEArca: JHMA) and John Hancock Multifactor Utilities ETF (NYSEArca: JHMU).
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.
Financial advisors who are interested in learning more about smart beta investments can register for the Tuesday, January 29 webcast here.