The John Hancock Multifactor ETFs track indices developed by Dimensional Fund Advisors, which will act as the subadvisor to the funds.
As opposed to traditional cap-weighted indices, which may also expose investors to other fundamental risks since the weighting methodology would attach more weight toward indebted countries or companies, a multi-factor benchmark attempts to avoid such problems.
Alternatively, the smart beta, multi-factor benchmarks frequently use factors like value, growth, quality and low volatility to diminish risks and potential enhance returns.
The underlying smart-beta index follows a rules-based selection process that is seen as a multi-factor approach or a combination of individual factors. For instance, 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.
Additionally, the underlying indices 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 suggests that the ETFs will follow a more equal-weight tilt with greater exposure to smaller companies than traditional market-cap weighted index funds.
Financial advisors who are interested in learning more about strategic beta or smart beta strategies can watch the webcast on-demand here.