you tell us about your investment philosophy and how it drives the composition
of the ETFs you manage?
identified four characteristics, or dimensions, of expected returns that
academic research has shown to account for most of the variation in historical
asset returns and that we believe will account for most of the variation in
future returns. These dimensions are the overall market, company size, relative
price, and profitability.
overall market dimension reflects the excess return over the risk-free rate,
which is typically measured by short-term U.S. Treasury bills, that market
participants demand for investing in a broadly diversified portfolio of equity
securities without any style or market capitalization bias. That premium is
called the equity premium.
company size dimension reflects the excess return that investors demand for
investing in small-capitalization stocks relative to large-capitalization
stocks. The premium associated with this dimension is the small-cap, or size,
relative price dimension reflects the excess return that investors expect from
investing in low relative price, or value, stocks—as measured, for instance, by
their price-to-book ratios—in comparison with high relative price, or growth,
stocks. The premium associated with this dimension is the value premium.
the profitability dimension provides a way to discern differences in expected
returns of companies with similar price-driven characteristics. Our research
shows that if two companies trade at the same relative price, the one with
higher profitability should have a higher expected return over time. The premium
associated with this dimension is called the profitability premium.
to a cap-weighted measure of the market, we believe that incorporating the four
dimensions of expected returns—market, company size, relative price, and
profitability—into a single investment strategy offers the potential for
outperformance over time, and an ETF is a vehicle well suited to our systematic
and transparent investment approach. The indexes developed for John Hancock
Multifactor ETFs are designed to capture these dimensions over time, and the
funds are, in turn, designed to track their respective indexes.
and empirical research suggests that investors can systematically pursue higher
expected returns by targeting the size, relative price, and profitability
dimensions in equity markets. We integrate these dimensions to emphasize stocks
with smaller market capitalizations, lower relative prices, and higher
drives changes to the composition of the funds?
are made to the funds as a result of regularly scheduled reconstitutions, a
semiannual process by which the list of stocks and their weights in each index
are updated, as well as any unscheduled changes to the index driven by company
events. Reconstitution ensures that the indexes that the funds track maintain
their intended exposure to the dimensions of expected returns. In addition, we
impose a maximum issuer cap in each index at the time of reconstitution to
control stock-specific risk.
did the broad equity market perform during the 12 months ended April 30,
U.S. market had positive returns for the period, outperforming emerging markets
but underperforming developed markets. Along the market capitalization
dimension, U.S. small caps underperformed large caps, while mid caps
outperformed small caps and underperformed large caps. Along the relative price
dimension, U.S. large-cap value stocks underperformed large-cap growth stocks
and U.S. small-cap value underperformed small-cap growth.
a historic 2022 rally where the U.S. dollar appreciated against nearly every
other major currency, 2023 has seen developed and emerging-market currencies
rebound strongly. Those currency movements, ultimately resulting in the dollar
weakening year-to-date, have had a positive impact on the U.S.
dollar-denominated returns of international markets.
HANCOCK MULTIFACTOR DEVELOPED INTERNATIONAL ETF (JHMD)
a NAV basis, the fund underperformed the MSCI EAFE Index, a cap-weighted
benchmark used as a proxy for developed ex-U.S. stock markets. The fund’s
emphasis on stocks with smaller market capitalizations detracted from relative
performance, as these stocks underperformed. Conversely, with low relative price
(value) stocks outperforming high relative price (growth) stocks, the fund’s
emphasis on value stocks contributed positively to relative performance.
Additionally, on a country basis, the fund’s exposure to France detracted from
relative performance while exposure to Switzerland contributed.
with the MSCI EAFE Index, the fund emphasizes stocks with lower relative prices,
smaller market capitalizations, and higher proﬁtability. In absolute terms, the
fund’s largest sector exposures were to industrials, ﬁnancials, and consumer
discretionary. The largest country exposures were to Japan and the United
Kingdom. Changes were made to the fund as a result of regularly