John Hancock Debuts A Multifactor Avenue To Emerging Markets

Perhaps the time is right for alternative approaches to sagging emerging markets equities. The John Hancock Multifactor Emerging Markets ETF JHEM, which debuted last week, will test that thesis.

JEHM is the latest fund in John Hancock's expanding lineup of multifactor exchange traded funds, which includes domestic broad market and sector funds.

What Happened

The new ETF targets the John Hancock Dimensional Emerging Markets Index. That benchmark focuses on “factors (smaller cap, lower relative price, and higher profitability) that academic research has linked to higher expected returns,” according to the issuer.

JHEM's underlying index also employs a momentum screen to weed out stocks displaying unfavorable momentum traits. The new ETF holds 522 stocks, less than are found in many cap-weighted emerging markets ETFs.

Why It's Important

JHEM's methodology also seeks to minimize portfolio turnover, which can make for a more cost-efficient fund.

The index “avoids making changes that do not meaningfully improve the expected return-and-risk profile of the overall index,” according to the issuer.

At the geographic level, JHEM's selection universe can include the following countries: Brazil, Chile, China, Colombia, the Czech Republic, Egypt, Greece, Hungary, India, Indonesia, Malaysia, Mexico, Peru, the Philippines, Poland, Qatar, Russia, South Africa, South Korea, Taiwan, Thailand, Turkey and the United Arab Emirates.

None of JHEM's holdings exceed weights of 3.91 percent. Familiar names among the new ETF's top 10 holdings include Tencent Holdings Ltd. TCEHY, Taiwan Semiconductor Co. TSM and Alibaba Group Holding Ltd. BABA.

What's Next

With emerging markets struggling, JHEM's tilt toward value and smaller stocks could serve the new ETF when stocks in developing economies rebound. The new ETF has an annual expense ratio of 0.55 percent, or $55 on a $10,000 investment.

As of Sept. 27, John Hancock had combined ETF assets under management of $1.48 billion.

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