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The Factors Supporting Smart Beta ETF Strategies

Investors can look to smart-beta, alternative index-based exchange traded funds to for a diversified solution to enhance returns and balance an investment portfolio.

On an upcoming webcast this Tuesday, Smart Beta Factors: How Many and What is Ideal? , Joel Schneider, Senior Portfolio Manager and Vice President of Dimensional Fund Advisors, and Phil Fontana, Head of Product Development at John Hancock Investments, will look at how smart-beta factor investments can help balance a portfolio and ways to implement a multifactor strategy.

For instance, John Hancock offers broad smart-beta ETFs to fill out a core portfolio position, including the John Hancock Multifactor Large Cap ETF (NYSEArca: JHML) and John Hancock Multifactor Mid Cap ETF (NYSEArca: JHMM) , along with a suite of multifactor sector-specific ETF strategies for investors seeking to overweight targeted areas of the market.

Related: ETFs Are a Hit Among Financial Advisors

The John Hancock Multifactor ETFs track indices developed by Dimensional Fund Advisors, which will act as the subadvisor to the funds.

The smart-beta indices follow a rules-based selection process that is seen as a multi-factor approach. Securities are adjusted by relative price and profitability. The underlying indices may overweight stocks with lower relative prices and underweight names with higher relative prices. The indices can also adjust for profitability by overweighting stocks with higher profitability and underweighting those with lower profitability.

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Additionally, the underlying indices implement market-capitalization adjustments where they increase the weights of smaller companies within the eligible universe and decrease the weights of larger names. The weighting methodology suggests that the ETFs will follow a more equal-weight tilt with greater exposure to smaller companies than traditional market-cap weighted index funds.

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For instance, JHML's market-cap weightings include 32.0% mega-caps, 36.9% large-caps and 31.2% mid-caps. In contrast, the S&P 500 index focuses on 50.0% mega-caps, along with 36.0% large-caps and 14.0% mid-caps. Moreover, JHML's top holdings include a less top heavy Apple (NasdaqGS: AAPL) 2.1%, Exxon Mobil ( XOM ) 1.4% and Microsoft (NasdaqGS: MSFT) 1.4%.

Financial advisors who are interested in learning more about smart-beta, factor investing can register for the Tuesday, June 21 webcast here .

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article was provided by our partner Tom Lydon of etftrends.com.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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