2016: Big ETF Predictions

December 30, 2015

Big Predictions for 2016John Hancock Hits Its Stride

John Hancock burst onto the ETF scene in 2015 clutching what amounted to the holy grail for many passive investors: It introduced a lineup of smart-beta ETFs that tracked indexes provided by none other than Dimensional Fund Advisors.

DFA is famous for its mutual funds and for its embrace of passive investing. It includes the likes of Nobel winners Myron Scholes and Eugene Fama on its boards. And while it’s “passive” in its investment approach, it doesn’t rely on indexes. Instead, its funds use quantitative methods and hold large swaths of their target markets, tilting toward small-cap and value stocks, and stocks with higher-than-average profitability levels.

Offering Easier Access To DFA
However, DFA funds can be hard for investors to get a hold of, as they are only sold through financial advisors that have been vetted and approved by DFA.

That an equally large and respected firm like John Hancock to cut a deal for DFA to modify its strategy to fit an index methodology and manage the ETFs is a coup. The result is that John Hancock has entered the ETF space with a unique value proposition—multifactor ETFs based on strategies from and managed by the firm that basically invented factor investing.

Suddenly, a DFA-generated strategy is widely available to all investors at a low cost and with no restriction on how they trade the products (advisors can be suspended by DFA for moving in and out of its funds too much).

John Hancock, in the launch of its ETF family, also rolled out the first multifactor sector funds, in addition to ETFs covering the U.S. large-cap and midcap spaces. The focus of factor-based funds has, up until now, been on countries, regions and size segments.

Sector Factor Approach
The first batch it launched included only four sectors—financials, health care, technology and consumer discretionary—but the firm has already filed for another five funds covering the other major sectors.

“While we cannot give forward estimates on sales, we subscribe to the belief that we will see increasing use of ETFs across all channels and customers, whether they be the traditional channels, retirement markets or the next generation of investors. At John Hancock Investments, we have high expectations given the pedigree of the two strong brands backing our ETFs,” said Andrew Arnott, president & CEO of John Hancock Investments.

We, however, anticipate that John Hancock will stand out in a crowded field because of these features. While the firm’s ETFs do not have much in assets now, we expect them to draw more attention from advisors by midyear and pull in at least $1 billion in assets by the end of 2016. The asset growth will likely accelerate as the firm rolls out more funds.

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