What is JHMD? (Pros, Cons, and Strategies)

Investors often seek diversification in their portfolios to mitigate risks and take advantage of growth opportunities across various markets. One such option is investing in international ETFs. John Hancock Multifactor Developed International ETF (NYSEARCA: JHMD) fits this criterion well. In this blog post, we will delve into what JHMD is, along with its pros and cons, and explore effective strategies for incorporating it into your investment portfolio.

What is JHMD?

JHMD, or John Hancock Multifactor Developed International ETF, is an ETF designed to provide exposure to developed markets outside the U.S. It aims to enhance returns while managing risk using a multifactor approach.

JHMD tracks the John Hancock Dimensional Developed International Index, which employs a multifactor strategy that includes value, size, and profitability factors. This approach is intended to offer a better risk-adjusted return than a market-cap-weighted index.

Key Features of JHMD

• Focuses on developed markets outside the U.S., such as Europe, Japan, and Canada
• Utilizes a multi-factor strategy (value, size, and profitability) for stock selection
• Holds a diversified portfolio across various sectors and industries

By incorporating factors like value, size, and profitability, JHMD aims to outperform traditional market cap-weighted indexes. This methodology seeks to balance risk and return, providing more stability and potentially higher growth over the long term.

JHMD Composition

JHMD includes well-known multinational companies from developed markets such as Nestlé, Toyota, and Royal Dutch Shell. These firms have a reputation for stability and consistent performance, contributing to the ETF’s balanced risk profile. The ETF spans multiple sectors, including consumer staples, industrials, and healthcare, ensuring comprehensive exposure to global economic activities.

Pros of JHMD

Diversification

By investing in JHMD, investors gain access to a broad range of companies across various countries and sectors. This international diversification can help mitigate the risks associated with investing in a single country or sector.

Multi-Factor Approach

The multi-factor strategy enhances the potential for higher returns and lower volatility. Factors such as value, size, and profitability have historically demonstrated strong performance, adding a layer of robustness to the investment.

Stable Performance

JHMD's diverse portfolio of large, stable multinational companies offers steady performance, even during economic turbulence. This stability is essential for investors seeking consistent returns.

Low Expense Ratio

Like many John Hancock ETFs, JHMD has a competitive expense ratio of 0.41%, which is crucial for long-term investors looking to minimize investment costs and maximize returns.

Cons of JHMD

Currency Risk

Since JHMD invests in international stocks, investors are exposed to currency risk. Fluctuations in foreign exchange rates can impact returns, either amplifying gains or exacerbating losses.

Limited Growth Potential

Compared to ETFs focused solely on emerging markets or tech-heavy sectors, JHMD may offer lower growth potential. The emphasis on developed markets and stability can limit explosive gains seen in more aggressive ETFs.

Lower Dividend Yield

JHMD typically offers a modest dividend yield of around 2%, which may be lower than other dividend-focused ETFs. Investors seeking high income from dividends might find this yield less attractive.

JHMD Investment Strategies

In light of its features and targeted markets, here are some strategies to consider when investing in JHMD:

Long-Term Core Holding

JHMD can serve as a core holding for investors seeking broad international exposure in their portfolios. Including JHMD as a long-term investment can harness the benefits of global diversification and multi-factor strategies, providing steady growth and balanced risk.

Combine with Domestic ETFs

To achieve a well-rounded portfolio, combine JHMD with U.S.-focused ETFs. Complementing JHMD with domestic investments can ensure comprehensive exposure to global economic activities while balancing potential risks and rewards.

Regular Rebalancing

Monitor and rebalance your portfolio regularly to ensure that the allocation between domestic and international holdings, such as JHMD, aligns with your investment goals and risk tolerance. Regular rebalancing helps maintain an optimal asset mix and enhances long-term performance.

Capitalizing on Market Cycles

Investing in JHMD during periods of global economic stability and growth can be beneficial. As international markets rebound and grow, JHMD’s diversified portfolio can capitalize on these cycles, offering substantive returns.

Hedging Currency Risk

Consider hedging strategies to mitigate currency risk associated with international investments. Currency-hedged ETFs or specific hedging instruments can reduce the negative impact of currency fluctuations on your returns.

Conclusion

John Hancock Multifactor Developed International ETF (JHMD) is a valuable tool for investors looking for a diversified and balanced approach to international investing. While it offers the benefits of stability, diversification, and a multi-factor methodology, it also presents challenges like currency risk and limited growth potential. By employing thoughtful strategies and maintaining a balanced portfolio, JHMD can be an effective component in achieving long-term investment goals.