John Hancock Investments on Tuesday joined the ETF space with the launch of six strategic-beta funds based on indexes from Dimensional Fund Advisors LP.
John Hancock, a Boston-based financial services giant known for insurance products and mutual funds, enters a crowded market for exchange-traded funds––and an increasingly crowded market for strategic-beta ETFs––with a recognizable brand name it plans to leverage with a national advertising campaign starting in October.
DFA, based in Austin, Texas, is known for its rules-based, multi-factor strategies influenced by the research of economists Eugene Fama and Kenneth French. Its strategies seek to isolate so-called dimensions, or factors––such as small capitalization, lower valuations and higher profitability––that it believes leads to market outperformance over the long haul.
The six funds resulting from the John Hancock/DFA collaboration are as follows:
All of the funds trade on the NYSE Arca. The Multifactor Large Cap ETF charges 35 basis points; the Multifactor Mid Cap ETF is 45 basis points and the four sector funds are 50 basis points each.
John Hancock made its initial filings for exemptive relief with the Securities and Exchange Commission in 2009, a step necessary to launch an ETF. But Andrew Arnott, president and CEO of John Hancock Investments, says the company wanted to wait for the right time to launch the right kind of funds.
“We didn’t want to launch a ‘me-too’ fund, or something that would be viewed as a commodity” such as the replication of indexes that have been the successful forte of iShares, Vanguard and State Street.
He adds he initially envisioned John Hancock building upon its traditional active-management approach to funds, but it hasn’t found the proper structure for efficient active exposure in an ETF.
Arnott notes that John Hancock and DFA have worked together since 2006, with DFA managing three John Hancock mutual funds in its asset allocation portfolios. They began discussions to take DFA’s 30-plus years of research and methodologies to a broader audience, and Arnott says the process that led to the six new ETFs took about 18 months from inception to today’s market launch.
The John Hancock names resonates with the general public and the DFA name has cache among financial advisors, and they’re banking on that name recognition to make inroads in a competitive marketplace.
“The credibility and pedigree that comes with those two brands is an important factor in cutting through the clutter,” Arnott says. He adds the marketing campaign for the funds will include television commercials on the likes of CNBC and MSNBC; print advertising in the financial press; and social media outreach via Twitter, Facebook and YouTube.
Additionally, Arnott says John Hancock will be the lead sponsor at Schwab Impact, an annual conference for financial advisors that this year takes place in November in Boston.
John Hancock has roughly 70 mutual funds, and Arnott says he doesn’t see any cannibalization risks posed by the six ETFs. “The mutual fund side is very active[ly managed], and we’ve found that investors want to mix both active and passive,” he says. “So we’ll be able to give them that.”