Passive index funds have served investors well, but in a prolonged bull market, traditional market cap-weighted indexing methodologies are now faced with more risks.
On the upcoming webcast, Strengthening Your Portfolio’s Core with Multifactor ETFs, Ryan Wellman, Product Manager, John Hancock Investments; and Andres Torres, Portfolio Manager, Dimensional Fund Advisors will delve into factor-based investments that can potentially address the risks posed by traditional cap weighting and outline ways a financial advisors can enhance the core of their portfolio with multi-factor 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), John Hancock Multifactor Mid Cap ETF (NYSEArca: JHMM) and John Hancock Multifactor Small Cap ETF (NYSEArca: JHSC), along with a suite of multifactor sector-specific ETF strategies, to help investors to overweight targeted areas of the market.
Investors can hone in on finer slices of the market through sector-specific, smart beta ETFs such as 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 multi-factor strategies can register for the Thursday, August 8 webcast here.