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Smart Beta ETFs to Better Engage with Current Markets

Max Chen

This article was originally published on ETFTrends.com.

As more take a harder look at their portfolio composition, many investors are turning to smart beta exchange traded funds to enhance their portfolios and meet the challenges ahead.

"They're kind of really starting to re-evaluate portfolios, and that's kind of where our multi-factor ETFs come in as they're used to using the cheap beta, market-cap weighted products. And now, they're saying, 'You know what? We've seen this growth, we've seen this run. It might be worth taking another look at these allocations here, and there's more product for us, frankly.' So, much interest in the multi-factor space, a lot of interest in our ETFs," Michelle Fuller, Head of ETF Distribution, John Hancock Investment Management, said at the Inside ETFs conference.

For instance, the John Hancock Multifactor ETFs track indices developed by Dimensional Fund Advisors, which act as the subadvisor to the funds. They offer several 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 multi-factor 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).

"John Hancock Investment Management has always believed in adding value to the portfolio, and with our partnership with dimensional funds, we feel that we really do that," Steve Deroian, US Head of ETF Product & Asset Allocation Models, John Hancock Investment Management, said.

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.

Watch Michelle Fuller and Steve Deroian Discuss Smart Beta ETFs:

https://youtu.be/8qj0C64_MDg

For more ETF-related commentary from Tom Lydon and other industry experts, visit our video category.

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