Examining The Helpfulness Of Hancock's ETFs

October 15, 2015 2:47 pm
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Last month, 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. The new ETFs, including the John Hancock Multifactor Large Cap ETF (NYSE: JHML) and the John Hancock Multifactor Mid Cap ETF (NYSE: JHMM), came to market at a time of rapid expansion for strategic beta or alternatively index ETFs.

The Appeal And Growth Of Smart Beta

According to FTSE Russell’s first U.S. retail financial advisor market survey – Smart Beta: 2015 survey findings from U.S. financial advisors – 68 percent of financial advisors polled are using smart beta ETFs and 70 percent are using multiple strategic beta approaches.

Related Link: Returning To Industrial ETFs

A recent survey by Create-Research found that smart beta ETFs account for over $300 billion, or 18 percent of the U.S. ETF market, by far the largest ETF market in the world.

A Closer Look At Hancock’s Large- And Mid-Cap ETFs

JHML, which to this point has hauled in almost $7.9 million in assets, “targets the largest 750 U.S. stocks, with a buffer to reduce turnover. 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.

JHMM, Hancock's multifactor mid-cap ETF, holds nearly 660 stocks. That ETF's screening criteria include lower relative price and higher profitability, according to the issuer. No stock accounts for more than 0.52 percent of JHMM's weight, and the new ETF's largest sector allocations include 19.8 percent to financial services and 17.1 percent to consumer discretionary.

Consumer discretionary is this year's top-performing S&P 500 sector.

JHML caps weights to its individual holdings, which include Apple Inc. (NASDAQ: AAPL) and Exxon Mobil Corporation (NYSE: XOM).

“Dimensional applies a similar bucketing approach to sort stocks on profitability, which the firm measures as operating income before depreciation and amortization minus interest expense, over book value.

“It applies these sorts within each sector to mitigate large sector biases and assigns stocks to one of five buckets, each representing a fifth of the available market capitalization. Stocks representing the most profitable bucket receive the largest market-cap multiplier (1.8), and those in the least profitable bucket get the smallest multiplier (1.0),” noted Morningstar.

Hancock’s Multifactor Sector ETFs

Hancock's four multifactor sector ETFs are the John Hancock Multifactor Technology ETF (NYSE: JHMT), John Hancock Multifactor Healthcare ETF (NYSE: JHMH), John Hancock Multifactor Financials ETF (NYSE: JHMF) and the John Hancock Multifactor Consumer Discretionary ETF (NYSE: JHMC).

With $7.8 million in assets under management, JHMT is currently the largest of the Hancock sector ETFs, a batch of funds that adhere to a similar strategic beta philosophy as their broad market counterparts. Although JHMT holds 118 stocks, some of its marquee holdings command significant weights. For example, Microsoft Corporation (NASDAQ: MSFT) and Apple combine for over 12 percent of the new ETF's weight.

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