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Another Multifactor ETF Enters the Market

Zacks Equity Research

The ETF industry worth $4.1 trillion is witnessing phenomenal growth and multifactor ETFs have been the most popular this year. As per data compiled by Bloomberg, multifactor ETFs have been dominant among other launches. Even Wells Fargo plans to enter the ETF market with a multifactor ETF next year. As per Morningstar Inc., there are a total of 204 multifactor ETFs with approximately $39 billion assets under management (read: 5 Picks to Ride on Smart Beta ETF Craze).

Probably this is why John Hancock Investments has expanded its ETF portfolio with the launch of its first multifactor ETF that focuses on international developed markets. John Hancock already has 11 ETFs targeting different segments of the domestic market - nine covering different U.S. sectors and a couple of ETFs focused on large- and midcap segments. As per ETF.com, these funds have total assets under management of $638 million.

The global footprint of the new fund makes it more attractive. Below, we have highlighted the newly launched fund John Hancock Multifactor Developed International ETF JHMD.

JHMD in Focus

JHMD trading on the NYSE Arca exchange tracks the John Hancock Dimensional Developed International Index, which provides exposure to a wide range of developed-market stocks outside North America. The fund targets to invest in stocks with smaller capital, lower relative price, and higher profitability, which should translate to higher expected returns. The fund provides diversified exposure to a basket of 609 stocks with none holding more than 2% weight.

The fund launched on December 15, 2016 has a net expense ratio of 0.45% and aims to control cost by minimizing turnover, trading costs, tax liabilities, and cash drag. From a sector point of view, financials takes the top position in the fund with about 18.7% exposure, followed by industrials, consumer discretionary and materials, each of which have double-digit allocation. The top countries Japan, UK and Germany have a combined weight of more than half of the fund’s assets.

Competition

The ETF could be well suited for investors looking for diversification benefits. However, changes in currency exchange rates may affect the value of the fund’s investment adversely.

The ETF could face competition from other multifactor ETFs with a global perspective. There are quite a few ETFs, which specifically target this market. Of these, iShares Edge MSCI Multifactor Intl ETF INTF has a total asset base of $185.4 million. This fund tracks the MSCI World ex USA Diversified Multiple-Factor Index and trades in volumes of 36,000 shares per day and charges 30 bps in annual fees.

Another fund targeting the international developed market space, FlexShares Morningstar Developed Markets ex-US Factor Tilt Index Fund TLTD has an AUM of nearly $632.2 million and exchanges 40,000 shares a day. The fund has net expense ratio of 39 bps.
 
Apart from these, JHMD could also face competition from PowerShares FTSE RAFI Developed Markets ex-U.S. Portfolio PXF with an asset base of $948.8 million and expense ratio of  46 bps and PowerShares S&P International Developed Low Volatility Portfolio IDLV with an AUM of $363.1 million and expense ratio of just 25 bps (read: ETF Strategies for 2H).

Competition in the ETF market is cut throat. So the expense ratio is likely to be the key in the near term. The fund has a chance of making a name for itself if it manages to generate return net of fees greater than the currently available products in this ETF space.

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PWRSH-FR DV MKT (PXF): ETF Research Reports
 
PWRSH-SP ID LVP (IDLV): ETF Research Reports
 
JH-MF DEV INTL (JHMD): ETF Research Reports
 
ISHARS-FS INTRN (INTF): ETF Research Reports
 
FLEXS-MR DMXUSF (TLTD): ETF Research Reports
 
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