Strategic beta: a better option?
Strategic beta strategies, such as Manulife ETFs, may be an attractive option for investors interested in a low-cost way to invest in equity markets. In short, strategic beta leverages the goals of both active and passive management.
On the active side, they offer the potential for outperformance by emphasizing specific segments of the market. On the passive side, they offer the benefits of passive index structure - low cost and transparency.
Passive investment vehicle – Offering investors the low cost and transparency of a rules-based approach
Active insight – Offering investors the potential for outperformance by emphasizing specific segments of the market
Source: Manulife Investments. For illustration purposes only.
Best of both worlds?
ETFs became popular because they can provide investors with broad market exposure in a convenient and low-cost way. However, there can be drawbacks. For example, many ETFs, like the indexes they track, are market capitalization weighted. What does that mean? It means that they give more weight to large companies than smaller ones.
These ETFs are essentially neglecting the equity of smaller, potentially more promising firms in favour of those larger companies that have already experienced significant growth. The risk: missing out on potential outperformance.
Strategic beta ETFs sidestep this drawback by allowing the manager to specify and emphasize specific segments of the market, based on their factors in an effort to focus on the sources of higher expected returns.
Factors that matter
Academic research has shown that securities that offer higher expected returns share certain characteristics, or factors. Dimensional Fund Advisors Canada ULC (“Dimensional Canada”) sub-advises Manulife ETFs. The Dimensional team emphasizes certain factors in an effort to increase the probability of outperformance versus traditional market cap-weighted ETFs and is a pioneer in this space.
To be considered a factor worth pursuing in an investment portfolio, it must be sensible, persistent over time, pervasive across markets, and cost-effective to capture. The Dimensional team have identified four such factors, worth pursuing in an investment portfolio: overall market, company size, relative price and profitability.
“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 its affiliates is affiliated with Manulife Investments or any of its affiliated entities. Dimensional Fund Advisors LP receives compensation from Manulife in connection with licensing rights to the Indexes. Dimensional Fund Advisors LP does not sponsor, endorse, or sell, and makes no representation as to the advisability of investing in, the Manulife ETFs.
Commissions, management fees and expenses all may be associated with exchange traded funds (ETFs). Investment objectives, risks, fees, expenses and other important information are contained in the prospectus, please read it before investing. ETFs are not guaranteed, their values change frequently and past performance may not be repeated.
Manulife ETFs are managed by Manulife Investments, a division of Manulife Asset Management Limited.