As ETFs have grown in popularity, more traditional mutual fund sponsors and asset managers have jumped on the bandwagon. The latest of which is Manulife Financial Corp’s (MFC) insurance and investment manager John Hancock. At the end of September, Hancock launched six new multi-factor or smart-beta ETF strategies. This was both Hancock’s and Manulife’s first forays into ETFs.
Building on its relationship with various sub-managers, Hancock tapped Dimensional Fund Advisors to manage and develop the indexes for the six new smart-beta ETFs. That partnership could help set the funds apart in the now crowed smart-beta sea. While most investors may not have heard of Dimensional, it is one of the first and most successful managers to explore multi-factor and rules-based investing. It’s been doing that for nearly three decades and based much of its expertise on academic research conducted by world-famous economists Eugene Fama and Ken French — both of whom are both board members. Dimensional’s line-up of mutual funds — which are only sold by select brokers and investment advisors — are some of best returning funds on the market.
They are no slouch when it comes to smart-beta and multi-factor investing. They basically wrote the book on it.
John Hancock’s suite of six new smart-beta funds will screen for metrics such as consistent profitability, lower relative price or “value” as well as focusing on smaller market-cap stocks within the respective indexes. Stocks are pretty much equally weighted in the funds. Dimensional uses its own set of parent indexes, as opposed to the S&P 500, to screen for its multi-factors.
Expenses for the new ETFs will range from 0.35% to 0.50% — or $35 to $50 per year for $10,000 invested. That makes them pretty darn cheap — even cheaper than many of Dimensional’s own mutual funds.
The six new smart-beta ETFs are:
- John Hancock Multifactor Large Cap ETF (JHML ): will track John Hancock Dimensional Large Cap Index. That measure will focus on the large-cap U.S stocks — specifically those firms with market capitalisations that are larger than that of the 801 largest U.S. companies at the time of reconstitution. Hancock/Dimensional will apply their screening process to create its portfolio. Currently, JHML holds 772 different stocks and has an expense ratio of 0.35%.
- John Hancock Multifactor Mid-Cap ETF (JHMM ): will track the John Hancock Dimensional Mid Cap Index. Like its large-cap twin, JHMM will apply its various multi-factor screens to those stocks whose market capitalisations between the 200th and 951st largest U.S. companies at the time of reconstitution. Currently, JHMM holds 659 different mid-cap stocks. The new smart-beta ETF has an expense ratio of 0.45%.
- The John Hancock Multifactor Consumer Discretionary ETF (JHMC ), John Hancock Multifactor Financials ETF (JHMF ), John Hancock Multifactor Healthcare ETF (JHMH ) and John Hancock Multifactor Technology ETF (JHMT ) will apply Dimensional’s screening process to various subsectors of the market that have traditionally been sources for outperformance. The sector ETFs will hold stocks across both large- and mid-cap market capitalization segments. Again, they are roughly equally weighted. The multi-factor sector funds are the most expensive in Hancock’s new line-up with costs to own running 0.50% in annual fees.