John Hancock expands Dimensional multi-factor offering with EM ETF

Oct 2nd, 2018 | By | Category: Equities

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Boston-based asset manager John Hancock Investments has launched the John Hancock Multifactor Emerging Markets ETF (JHEM US) on NYSE Arca, providing exposure to emerging market equities that are weighted using a multi-factor process.

Andrew G. Arnott, President and CEO of John Hancock Investments

Andrew G. Arnott, President and CEO of John Hancock Investments.

Similar to the firm’s existing multi-factor ETFs, the new fund tracks an index created by Dimensional Fund Advisors.

Dimensional is considered one of the pioneers in the smart beta space, having developed its approach over 35 years of market research.

“With the addition of this ETF focused on emerging-market equities, we round out our suite of core equity ETF offerings that clients can use to build a global equity allocation,” said Andrew G. Arnott, President and CEO of John Hancock Investments.

“We’re pleased to bring Dimensional’s time-tested multifactor approach to our investors once again with this ETF.”

“As we hit the three-year anniversary of the launch of our first ETFs with Dimensional, we’re excited to add an emerging market ETF as an offering for our clients,” added Steve Deroian, US Head of ETF Product at John Hancock Investments. “The team at Dimensional has continually demonstrated their intellectual rigour, strict attention to detail, and strength of implementation; it’s been an exceptional firm to partner with as we seek to deliver strong long-term solutions for our clients.”

The underlying John Hancock Dimensional Emerging Markets Index targets stocks making up approximately the top 80% of the market capitalization across each emerging market country but may include up to 85% in order to minimize unwarranted trading costs within the fund.

Index constituents are evaluated according to their characteristics of market capitalisation (size), relative price (value), profitability (quality) and 11-month total return (momentum). Stocks with low relative price, high profitability and smaller market cap are favoured through the index’s weighting methodology.

The fund also incorporates a rules-based, ‘smart’ rebalancing process which aims to maintain focus on the appropriate factors while enhancing returns, reducing unnecessary turnover, and managing trading costs. In general, this process entails avoiding purchasing securities with low price momentum, making small incremental changes where rebalancing does not meaningfully improve the expected return-and-risk profile of the overall index, and using the proceeds from the removal of sizable securities to increase factor exposure and potentially reduce turnover.

Reconstitution and rebalancing occur on a semi-annual basis, and it comes with a net expense ratio of 0.55%.

The fund is the fourteenth ETF to be launched as a collaboration between John Hancock and Dimensional. The existing fund house over $1.5 billion in assets and include US large-, mid-, and small-cap portfolios, international portfolios and a range of sector-specific offerings.

It will likely compete with funds such as the $250m iShares Edge MSCI Multifactor Emerging Markets ETF (EMGF US) or the $65 million Hartford Multifactor Emerging Markets ETF (ROAM US).

The iShares fund is linked to the MSCI Emerging Market Diversified Multiple-Factor Index, which maximizes exposure to the value, momentum, quality and low size factor risk premia, and has an expense ratio of 0.45%.

The Hartford fund meanwhile tracks the proprietary Hartford Risk-Optimized Multifactor Emerging Markets Index which selects constituents based on a blend of three factors (value – 50%, momentum – 30%, and quality – 20%). It has an expense ratio of 0.49%.

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