At the Inside ETFs Conference, we had the opportunity to speak with John Hancock Investments’ President of Institutional Distribution Todd Cassler, and Vice President of Product Management John Bryson. John Hancock only recently joined the ETF space with its lineup of six smart-beta ETFs. Below, we discuss their investment philosophies and insights on the importance of asset allocation in your portfolio.
ETF Database (ETFdb): John, please tell us about yourself and about the trajectory that led you to becoming Vice President of Product Management at John Hancock Funds.
John Bryson (J.B.): I have been in the financials services industry for over 20 years and worked at such firms as Putnam Investment, Nataxis (known as New England Funds at the time), Fidelity Investments and, the last eight years, at John Hancock Investments. I have held numerous product roles in the intermediary and employer sold channels, and grew responsibilities along the way. My current responsibilities include leading product management, investment research, portfolio consulting, ETF capital markets, stable value, and college-savings teams for John Hancock Investments.
ETFdb: Todd, before coming to John Hancock, you were the vice president at Neuberger Berman. What led you to change paths and become the president of institutional distribution at John Hancock Investments?
Todd Cassler (T.C.): My role covers a variety of different areas. I have responsibility for bank trust, broker/dealer platform, RIA, DCIO, consultant, and BITs and a direct channel. I basically focused on the professional-buyer community – anybody who has a unique process to their business model or is doing some kind of screening methodology in order to choose their underlying investment options. I’ve been with Hancock for about eight years. Prior to that, I was with Neuberger Berman, and before that, I was with American Scandia, which was an insurance company based in Connecticut. I’ve always been on the institutional business development side. I got my start focused on the fee-based advisors, then transitioned to asset allocation, third-party asset management, and distributing asset allocation products through direct investors. So I’ve always been on the institutional side of the investment business.
ETFdb: John Hancock Investments has six multifactor ETFs. What opportunities do these smart-beta ETFs offer compared to “regular” ETFs?
J.B.: The biggest opportunity is to reduce the bias that market-cap weighted ETFs impose on investors. With a time-tested and proven approach that Dimensional pioneered over three decades ago, our multifactor ETFs aim to deliver excess return over a market-cap weighted benchmark by constructing indexes that favor smaller-cap stocks, value stocks and highly profitable stocks within their investable universes. Combining active and passive management is a smart way to achieve a goal. Smart beta or strategic beta fits in that construct if you’re looking for long-term outperformance.
ETFdb: These are very recent ETFs that were launched in September 2015. Why did John Hancock Investments decide to release these into the market?
J.B.: The John Hancock Investments business model strives to address investor needs through a trusted, research-driven approach. In response to client feedback, we entered the ETF marketplace following the same due-diligence process for these ETFs as we do for our mutual funds, and launched them when we found a subadvisor who had a unique and best-in-class offering that gave our clients a differentiated and value-added product.
T.C.: John Hancock has a unique business model; we start with a manager-manager approach. We apply an asset allocation framework to our investment decision-making process. From there, we choose the underlying investments – whether that’s UCITS, mutual funds or in this case, ETFs. If you look at the ETF market, it’s broken into two distinct categories: cheap beta, and the smart-beta factor-based investing. The cheap beta segment is dominated by the major players – BlackRock, State Street, Schwab etc. Therefore, the ability for a new firm to come into that marketplace is relatively challenging; you’re not going to disintermediate one of them. However, in this new area where you’re halfway between passive and active smart beta, we felt that we have a real opportunity to build something in the investment community. So we applied that manager-manager approach. We have 150 investment professionals who are on the risk-management due-diligence side. We went out into the universe and we identified who’s a longstanding partner. We’ve worked with them since 2006. They’ve run a number of different investment portfolios for us, and they have a long history in factor-based investing. So they use the Fama-French – over 30 years of history – value, small-cap, focus on price. … We have the deep fundamental research that our manager-manager approach offers, and clients are going to get access to something they otherwise would not have access to in the form of dimensional. We decide to launch the product. We offer two traditional assets classes for sectors. We have filed for the additional sectors to round out the universe.
ETFdb: Speaking about smart beta, do you think every investor should have some type of smart-beta ETF in his or her portfolio?
T.C.: I think smart beta is a tool that an investor has access to, and part of it is a tool that he/she uses as part of the asset allocation. Whether it’s cheap beta, smart beta or active management, I think there is a place for smart-beta ETFs in a client’s portfolio – but it’s part of the overall asset allocation. I think that the big thing investors and advisors have to focus on is the due diligence of the underlying investment. That’s one of the challenges in the market: What’s the definition of smart beta? What’s the definitive factor-based investing? When you talk to a lot of individuals, my guess is that everybody has a different definition of what it is. Part of what needs to happen is that individuals need to think about how they do due diligence, as well as think about what is it they’re going to focus on. We think that we offer unique value in this manager-oversight function that we offer, which we can use to help educate clients.
ETFdb: Who should invest in your funds? What kind of investor should hold these smart-beta ETFs?
J.B.: These ETFs should be suitable for all kinds of investors, but mainly for those who don’t want to time the market. The ETFs aim to deliver excess returns over a market-cap weighted benchmark over a full market cycle. By investing in these ETFs, investors get access to a well-diversified strategy that has proven to work over multiple time periods. Dimensional’s research has proven that tilting a portfolio toward smaller-cap and value stocks adds excess returns to a portfolio, going back as far as the mid-1920s, and that the tilt toward highly profitable stocks adds excess returns, going back to the mid-1960s. So people who are looking to take advantage of long-term anomalies for outperformance should consider our ETFs.
T.C.: We are focused on institutions, on individual investors and financial advisors, so we think the product is something that may be suitable for all clients. Those who are trying to solve particular needs in their portfolios and want to get active access to the investment discipline of dimensional fund advisors – we think this product will fit well for them.
ETFdb: You’ve only covered four sectors in your current ETF lineup (consumer discretionary, financials, health care and technology). Why focus on only these sectors?
J.B.: We have filed to launch the remaining sector ETFs, and those should be launched in the first half of 2016.
ETFdb: What is the future direction of John Hancock? What kinds of other products or services is the company thinking of offering? Will there be any new technology implementation within the overall business?
J.B.: At John Hancock, our job is to select and oversee the best managers, and we are focused on the investor first and foremost. We pursue this goal with an asset-allocation mindset, given our heritage with multi-asset portfolios. We continually explore new ways to meet investor needs, and that can include enhancing our line of investment capabilities across asset classes and vehicles – be they ETFs, mutual funds, closed-end funds, college-savings accounts, managed accounts, retirement portfolios or UCITS funds.
ETFdb: What is the best piece of advice you’d give people for 2016?
J.B.: Take a good look at what your goals are and make sure they match with your investment strategy. Try to ignore short-term challenges, where we can be our own worst enemy – making short-term decisions that don’t align with our long-term goals.
T.C.: The focus is on a diversified portfolio investment across a broad set of asset classes. We think the approach that is well balanced and diversified will help individuals meet their investment objectives.
ETFdb: Do you think the current volatility will continue in markets?
T.C.: Well. I think that I don’t have a crystal ball, so I can’t tell you whether or not the volatility is going to continue or not. However, if you have a diversified portfolio that’s well balanced with a number of different asset classes, then I think you are going to help protect yourself in these challenging times.
ETFdb: What are your biggest insights so far during the conference?
J.B.: Educating people continues to be the biggest challenge that we continue to work at, and we have to continue to evolve. There can be so much noise in the marketplace, but if you sit down and again, look at your long-term goals, there’s a lot of different tools that will help you achieve them. It just takes time to review and learn them. In general, as a society, we like quick answers with minimal work. But if you do the work and dig in to understand the strategies, I think you could put together a pretty good portfolio.
T.C.: The biggest insight is the number of vendors that are here – that have entered into the smart-beta ETF two trillion dollar market. You are seeing a lot of new firms coming into the ETF marketplace – specifically smart beta – and a number of those firms have not historically participated in the ETF market. I would say the other thing is that the conference has continued to grow. You have continued to see more emphasis put on ETFs, both from a media perspective and from an advisor’s standpoint. So the market continues to grow, and you see a lot of new offerings coming into the market.