What is an ETF?

Offering simple, low-cost diversification – across multiple markets – exchange-traded funds (ETFs) represent truly valuable opportunities for investors. An ETF can hold stocks, bonds, commodities, currencies, options or a blend of assets. What’s more, you can buy and sell ETF shares on exchanges, just how you would trade stocks.

But what are they, exactly? Well, when you purchase an ETF, you’re essentially investing in the performance of an underlying basket of securities – traditionally, securities that represent a particular index or market sector. 

For instance – If you purchase an ETF that tracks the S&P/TSX Composite Index in Canada, then you’re getting exposure to the underlying securities that represent that index (or a sampling of that index). Through an ETF, then, you can seek to replicate the weightings and performance of a particular index.

Just like a mutual fund, ETFs can be passively or actively managed, but unlike mutual funds, ETFs can be traded throughout the day on exchanges similar to individual securities. Mutual funds, on the other hand, are bought and sold directly from the mutual fund company at the current day’s closing price.

Key ETF features in a nutshell:

The Manulife ETF Difference

Strategic beta: seeking to build a better index.

    Manulife’s ETFs take a different approach incorporating a strategic beta strategy.

Traditional ETFs construct their portfolio of stocks by using market capitalization figures of companies (in other words, the current share price multiplied by the number of outstanding shares). While this method may appeal to some investors, it holds limitations. 

Manulife ETFs seek to improve upon traditional market capitalization strategies by tracking a custom index that combines active portfolio management insight with the discipline of a passive, rules-based approach.

In addition to market capitalization, these strategies consider a company’s relative price and profitability. Decades of empirical research has linked smaller capitalization, lower relative price, and higher profitability to the potential of delivering higher expected returns from stocks. This approach leads to a custom index that emphasizes specific market segments offering higher expected returns, which is supported both theoretically and empirically.

Manulife ETFs focus on four key factors that drive the potential for higher expected returns. These four factors are:

  1. Equity premium – Emphasizes stocks over bonds
  2. Small-cap premium – Emphasizes small companies over large companies
  3. Value premium1 – Emphasizes undervalued stocks, trading lower relative to key characteristics
  4. Profitability premium2 – Emphasizes companies with high profitability versus low profitability

Manulife ETFs achieve this by tracking a custom index that emphasizes these four factors with higher expected returns. This approach essentially combines active insights – or, the goal of outperforming the market – with the low cost and transparency of passive (traditional) ETF investing.

1Relative price, as measured by the price-to-book ratio; value stocks are those with lower price-to-book ratios.

2Profitability is a measure of current profitability, based on information from individual companies’ income statements. Diversification does not guarantee a profit or eliminate the risk of a loss.
 

The Dimensional Difference – Decades of factor-based investment expertise 

Manulife ETFs track Dimensional Fund Advisors’ custom-designed indexes, which are constructed to enhance exposure to the (previously mentioned) key factors linked to the potential for higher expected returns. Dimensional is a leading global investment firm that has been translating academic research into practical investment solutions since 1981. Only Manulife offers ETFs in Canada sub-advised by Dimensional.

Backed by renowned researchers – Dimensional seeks to identify the factors that can be efficiently implemented to deliver solutions that offer higher expected returns to investors. Decades of rigorous theoretical and empirical research support the factors Dimensional pursues in its investment portfolios. This includes the pioneering research of Nobel Laureate, Eugene Fama, and renowned researcher, Kenneth French, both of whom serve on Dimensional’s board of directors.*
 

Summarizing Dimensional’s leading approach

*Eugene Fama and Kenneth French provide consulting services to and are board members of an affiliate of Dimensional Fund Advisors Canada ULC.

Are Manulife ETFs right for you?

If you want…

… then Manulife ETFs may represent a valuable option.

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Fund information

Prospectus for Manulife ETFs - April 2017

Prospectus for Manulife ETFs - November 2017

Summary documents

Manulife Multifactor Canadian Large Cap Index ETF

Manulife Multifactor U.S. Large Cap Index ETF – Unhedged Units

Manulife Multifactor U.S. Large Cap Index ETF – Hedged Units

Manulife Multifactor U.S. Mid Cap Index ETF – Unhedged Units

Manulife Multifactor U.S. Mid Cap Index ETF – Hedged Units

Manulife Multifactor Developed International Index ETF – Unhedged Units

Manulife Multifactor Developed International Index ETF - Hedged Units

Manulife Multifactor U.S. Small Cap Index ETF – Hedged Units

Manulife Multifactor U.S. Small Cap Index ETF – Unhedged Units

Manulife Multifactor Canadian SMID Cap Index ETF

Price and performance

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Incorporating ETFs into your portfolio

Whitepaper on how to incorporate ETFs in a traditional portfolio.

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“Dimensional Fund Advisors” and “Dimensional” refer to the Dimensional separate but affiliated entities generally, rather than to one particular entity. Dimensional Fund Advisors Canada ULC is the sub-advisor to the Manulife ETFs. Neither Dimensional Fund Advisors Canada ULC nor any of its affiliates is affiliated with Manulife Investments or its affiliates.