Multifactor ETF investing at John Hancock Investment Management

We believe investors can benefit from a blend of factors working together to drive performance. That's why we brought our multimanager approach to the ETF market, teaming up with Dimensional Fund Advisors, a company regarded as one of the pioneers of factor-based investing.

Multifactor ETFs offer potential outperformance at a lower cost

Investors are increasingly looking for lower-cost ways to access financial markets. Factor-based ETF strategies seek to provide that exposure along with the potential for outperformance.

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Seeking to build a better index

Factor-based investing, a form of strategic beta, seeks to identify and harness certain investment characteristics—such as size and momentum—that research has shown to drive performance over time.

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Understanding strategic beta

See why a rules-based strategy that alters the traditional market-cap-weighting scheme can be an approach well worth pursuing.

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Seeking to build a better index

Multifactor investing: why a blend of factors is better than one

Single-factor approaches can be a great way of amplifying a specific trait in a portfolio. But like any concentrated strategy, single-factor approaches also introduce a new source of risk that can come in and out of favor, and that needs to be managed. Multifactor strategies combine several factors into a single portfolio, helping to ensure that not all factors fall out of favor at the same time.

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Incorporating ETFs into your portfolio

We examine the trends behind the growth in the ETF market and reveal some common strategies for implementing them in a diversified portfolio.

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Why blending active and passive strategies is right for investors

We explore the advantages and drawbacks of active and passive strategies and how investors may benefit by blending the two.

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Individual factors can be volatile: there's no telling when one will outperform the other

Annualized performance of single factors and a mix of factors

Dimensional's approach: a time-tested strategy
built on decades of academic research

An idea rooted in academia

Dimensional Logo

Dimensional Fund Advisors is a pioneer of multifactor investing. The company has applied ideas rooted in academia for decades and, today, it's one of the most well-respected managers in the field.

Thoroughly vetted by our team

John Hancock Investment Management's relationship with Dimensional and due diligence of the company's management teams began in 2006, resulting in Dimensional-managed strategies being offered as both individual funds and through our asset allocation portfolios.

A proven approach

Dimensional's systematic approach is backed by insight gained from decades of academic research and experience implementing rules-based strategies in competitive markets. Founded in 1981, Dimensional Fund Advisors has built a $660 billion global asset management business based on the implementation of this research across asset classes.

Isolating the factors that drive higher expected returns

A landmark 1992 study by University of Chicago Professor Eugene Fama and Dartmouth College Professor Kenneth French argued that, based on history, focusing on smaller stocks and those with lower relative prices¹ may improve a portfolio’s expected return.² Subsequent research conducted by University of Rochester Professor Robert Novy-Marx identified profitability³ as another factor that enhances expected returns.⁴ Today, Dimensional offers investment solutions built on the idea that combining specific factors, borne out by years of rigorous research, can produce better outcomes for investors over the long term.

Key figures behind Dimensional Fund Advisors discuss the company’s founding and its guiding principles.

A winning combination in factor-based investing: stocks characterized by smaller capitalizations, lower relative valuations, and higher profitability have outperformed over time
Isolating the factors that drive higher expected returns

Index construction

Index construction

Market exposure: capturing broad market exposure to avoid trying to outguess the market

The first step in constructing each index is to identify the securities eligible for inclusion. For all indexes, the universe of the 1,000 largest U.S. stocks is ranked, from biggest to smallest. Certain illiquid securities or securities with multiple share classes may be excluded from consideration; after this initial screen, the indexes each define their target segment of the universe, resulting in a broad range of stocks per index—750 for the large‑cap index, 600 for the mid-cap index, and between 40 and 175 for each of the sector indexes.

Dimensional Fund Advisors' Head of Investment Analytics and Data Peter F. Dillard talks about the multifactor process Dimensional uses to build its indexes.

Portfolio structure: emphasizing factors associated with higher expected returns

Once the target portfolio is identified, weightings are assigned to each security to be included. While the large-cap index, for example, will hold roughly 750 stocks, the weights of those securities may vary from market-cap-weighted indexes. That’s because academic research suggests that certain factors—smaller capitalization, lower relative price, and higher profitability³—are linked to higher expected returns, so the securities in the index are weighted to place greater emphasis on stocks that exhibit those characteristics.

Portfolio structure
Implementation: maintaining focus on an asset class while minimizing unnecessary trading costs

Implementation: maintaining focus on an asset class while minimizing unnecessary trading costs

Each of the indexes is reconstituted—or rebalanced—twice a year. The indexes use a feature called Index Memory® to help mitigate trading costs. If a security was included in an index before reconstitution and if keeping it in the index doesn't meaningfully change the overall characteristics of the index, that security will continue to be held and any change in weighting is minimized. The goal is to avoid making trades that don't meaningfully improve the expected return-and-risk profile of the overall portfolio.

John Hancock ETFs

JHCB Corporate Bond ETF Manulife Investment Management Corporate Bond High-quality income opportunities
JHMB Mortgage-Backed Securities ETF Manulife Investment Management Intermediate Core Bond High-quality income opportunities
JHMC Multifactor Consumer Discretionary ETF Dimensional Fund Advisors Consumer Cyclical Targeted equity exposure
JHMS Multifactor Consumer Staples ETF Dimensional Fund Advisors Consumer Defensive Targeted equity exposure
JHMD Multifactor Developed International ETF Dimensional Fund Advisors Foreign Large Blend Core international holding
JHEM Multifactor Emerging Markets ETF Dimensional Fund Advisors Diversified Emerging Markets Core international holding
JHME Multifactor Energy ETF Dimensional Fund Advisors Equity Energy Targeted equity exposure
JHMF Multifactor Financials ETF Dimensional Fund Advisors Financial Targeted equity exposure
JHMH Multifactor Healthcare ETF Dimensional Fund Advisors Health Targeted equity exposure
JHMI Multifactor Industrials ETF Dimensional Fund Advisors Industrials Targeted equity exposure
JHML Multifactor Large Cap ETF Dimensional Fund Advisors Large Blend Core equity holding
JHMA Multifactor Materials ETF Dimensional Fund Advisors Natural Resources Targeted equity exposure
JHCS Multifactor Media and Communications ETF Dimensional Fund Advisors Communications Targeted equity exposure
JHMM Multifactor Mid Cap ETF Dimensional Fund Advisors Mid-Cap Blend Core equity holding
JHSC Multifactor Small Cap ETF Dimensional Fund Advisors Small Blend Core equity holding
JHMT Multifactor Technology ETF Dimensional Fund Advisors Technology Targeted equity exposure
JHMU Multifactor Utilities ETF Dimensional Fund Advisors Utilities Targeted equity exposure

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