Write A Prescription For This Healthcare ETF

Amid the bevy of exchange traded products that came to market in the U.S. last year, one of the more interesting themes were the initial forays into the business by some well-known money managers. In September, asset management giant John Hancock became the latest big name in the financial services industry to enter the exchange-traded funds arena, doing so with six funds sub-advised by Dimensional Fund Advisors.

Hancock's new ETF lineup is comprised of six funds – four sector funds and two broad market ETFs – that are multifactor, strategic beta offerings. One of those sector ETFs is the John Hancock Multifactor Healthcare ETF JHMH.

Like Hancock's other sector ETFs, the John Hancock Multifactor Healthcare ETF emphasizes factors, such as lower price, higher profitability and smaller market values, that research has proven can facilitate higher returns, according to Hancock.

Dimensional applies market-cap multipliers to emphasize stocks with the targeted size, value, and profitability characteristics. For example, the firm sorts all stocks in the eligible universe (excluding REITs) by price/book within each sector and creates five buckets, each representing a fifth of the available market capitalization,” according to a recent Morningstar research piece.

Though JHMH's methodology includes an emphasis on smaller market values, the ETF is home to 109 stocks with a weighted average capitalization of nearly $74 billion. On the surface, JHMH looks a lot like traditional cap-weighted healthcare ETFs in that the Hancock allocates nearly a third of its weight to pharmaceuticals stocks.

Additionally, Dow components Johnson & Johnson JNJ, Pfizer Inc. PFE and Merck & Co. MRK, usual suspects in traditional healthcare ETFs, are JHMH's top three holdings. However, that trio combines for just over 15 percent of JHMH's weight where as standard healthcare ETFs usually devote close to 30 percent to those healthcare giants.

Healthcare services providers and medical device manufacturers combine for half of JHMH's weight, leaving a biotechnology allocation of just over 17 percent. Two biotech stocks – Amgen Inc. AMGN and Gilead Sciences Inc. GILD – are found among the ETF's top 10 holdings.

JHMH has been flat since coming to market in September. The new ETF charges 0.5 percent per year, or $50 for every $10,000 invested.