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Factor Fun In A New Small-Cap ETF

November 14, 2017 8:50 am
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Factor Fun In A New Small-Cap ETF

Small-cap stocks and the related exchange traded funds are springing back to life after lagging to start 2017. Over the past 90 days, the Russell 2000 Index and the S&P SmallCap 600 Index have each returned more than 6 percent.

Perhaps the John Hancock Multifactor Small Cap ETF (NYSE:JHSC) will prove to be a well-timed addition to the small-cap ETF arena. The John Hancock Multifactor Small Cap ETF debuted Monday, rounding out Boston-based John Hancock's suite of large- and mid-cap factor ETFs.

The new ETF tracks the John Hancock Dimensional Small Cap Index, which was developed by Dimensional Fund Advisors. The John Hancock Multifactor Large Cap ETF (NYSE:JHML) and the John Hancock Multifactor Mid Cap ETF (NYSE:JHMM) also track benchmarks developed by DFA.

More On JHSC

JHSC “consists of securities in the U.S. universe issued by companies whose market capitalizations are smaller than the 750th largest U.S. company but larger than the smallest 4 percent of U.S. companies,” according to a statement from John Hancock. 

The new ETF has 480 holdings, giving it a smaller roster than cap-weighted funds tracking the Russell 2000 and S&P SmallCap 600 indexes.

JHSC allocates nearly 17 percent of its weight to the financial services sector and over 16 percent to technology stocks. The industrial and consumer discretionary sectors combine for over 28 percent of the new ETF's roster, with real estate and healthcare names combining for over 20 percent.

Factor Phenomenon

Multi-factor ETFs have become an increasingly prominent part of the fast-growing smart beta landscape, as historical data show different factors lead and lag over varying time frames. Multi-factor funds help eliminate the need for factor timing.

For its part, JHSC focuses on the small-cap size factor, profitability and lower relative price. JHSC charges 0.5 percent per year, or $50 on a $10,000 investment.

John Hancock has a combined $1 billion in assets under management across its suite of ETFs.

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