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Cracking Open Factors: Beyond the Style Box

Max Chen
·2 min read

This article was originally published on ETFTrends.com.

While 2020 may feel like a “this time it’s different” year, the reality is the core underpinnings of what makes for a winning portfolio haven’t changed: controlling expenses, managing your taxes, and most importantly, having the right exposures for the current market regime. But with wild swings in both sectors and factors, how do you construct an equity portfolio for the long haul?

In the upcoming webcast, Cracking Open Factors: Beyond the Style Box, Michael Stephens, Investment Consultant, John Hancock Investment Management; and Brad Feeley, Managing Director, ETF Specialist, John Hancock Investment Management, will walk through a unique multifactor approach to constructing portfolios.

For example, the John Hancock Multifactor ETFs track indices developed by Dimensional Fund Advisors, which act as the subadvisor to the funds. They offer 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 home 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 helps 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 factor investments can register for the Thursday, November 5 webcast here.

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