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

If you're concerned about the long-term sustainability of Social Security or are looking to diversify your retirement savings, it's time to consider a wide range of investment vehicles. One such option is JHMM, the John Hancock Multifactor Mid Cap ETF. Investing in JHMM could potentially balance your investment portfolio by targeting mid-cap companies. This post will explore what JHMM is, along with its advantages, disadvantages, and investment strategies.

What is JHMM?

JHMM stands for John Hancock Multifactor Mid Cap ETF, an exchange-traded fund designed to provide exposure to U.S. mid-cap stocks.

JHMM aims to replicate the performance of the John Hancock Dimensional Mid Cap Index, which strategically selects mid-cap companies based on a set of multifactor criteria including value, size, and profitability.

Key Features of JHMM

• Multifactor Approach: Utilizes a strategy combining multiple factors such as value (stocks priced relatively low compared to their value), size (smaller companies within the mid-cap range), and profitability (profitable companies).
• Mid-Cap Focus: Aimed at mid-cap stocks, which are usually considered to strike a balance between the high growth potential of small-cap stocks and the stability of large-cap stocks.
• Diversification: Broad exposure across various sectors, offering investors a diversified portfolio within the mid-cap space.

JHMM aims to enhance returns through its multifactor strategy, expecting companies with these characteristics to outperform over the long term.

JHMM Composition

JHMM includes a diversified range of mid-cap stocks from various sectors such as finance, healthcare, technology, and consumer goods. This broad sector diversification helps to mitigate sector-specific risks and provides balanced growth opportunities.

Pros of JHMM

Multifactor Strategy

JHMM's multifactor approach caters to investors looking for a balanced risk-reward profile. By focusing on value, size, and profitability, the fund seeks to capitalize on the strengths of underappreciated mid-cap stocks that possess strong potential for growth.

Diversification

Another significant advantage of JHMM is its broad diversification across multiple sectors. This variety reduces the risk associated with sector-specific downturns. A diversified mid-cap portfolio can act as a stabilizing force in an investment portfolio, offering growth potential while spreading risk.

Potential for Higher Returns

Mid-cap companies often have more room for growth compared to large-cap companies. As a result, JHMM can offer higher return potential compared to large-cap-focused funds, especially over the long term. If these mid-cap companies perform well, shareholders stand to benefit significantly.

Relatively Lower Expense Ratio

With an expense ratio of around 0.42%, JHMM is moderately priced compared to other active ETFs. A lower expense ratio means investors can enjoy more of their returns without a significant portion being eaten up by fees, making JHMM a cost-effective choice for mid-cap exposure.

Cons of JHMM

Higher Volatility

While mid-cap stocks offer higher growth potential, they also come with higher volatility. In turbulent market conditions, mid-cap stocks can experience more significant price swings than large-cap stocks, making JHMM a more volatile investment.

Not Suitable for Risk-Averse Investors

Due to the volatility associated with mid-cap stocks, JHMM may not be suitable for risk-averse investors. Those looking for more stable investment options may prefer funds investing in large-cap or dividend-paying companies.

Sectoral Risks

While JHMM offers broad diversification, it still carries inherent sectoral risks. Certain sectors included in JHMM's portfolio might underperform, thereby affecting the overall performance of the ETF.

JHMM Investment Strategies

JHMM's design makes it suitable for investors with a particular strategy in mind. Here are some recommended strategies for incorporating JHMM into your portfolio.

Long-term Investment Strategy

Given the volatile nature of mid-cap stocks, a long-term investment horizon is crucial. By holding JHMM for an extended period, investors can ride out short-term market fluctuations and potentially benefit from the growth of mid-cap firms. A minimum investment horizon of 5 to 10 years is ideal for allowing the multifactor strategy to pay off.

Diversification Strategy

JHMM can be used to diversify an existing portfolio dominated by large-cap or small-cap stocks. By adding mid-cap stocks, JHMM creates a balanced exposure across different market capitalizations, which can enhance the overall risk-return profile of the portfolio.

Regular Investment and Rebalancing

Consistently investing in JHMM through a systematic investment plan (SIP) can help leverage market fluctuations and average investment costs. Periodic rebalancing ensures that your portfolio maintains its desired allocation and risk level.

Target Retirement Funds

If aiming for retirement savings, integrating JHMM into a diversified retirement portfolio can capitalize on its growth potential. Combining it with other ETFs focused on stability and income can provide a robust retirement fund strategy.

Conclusion

JHMM (John Hancock Multifactor Mid Cap ETF) offers a strategic approach to mid-cap investing by leveraging a multifactor model. While it provides an attractive balance of growth potential and diversification, it also carries higher volatility compared to large-cap-focused funds. Therefore, it's crucial for investors to consider their risk tolerance and investment horizon when incorporating JHMM into their portfolios. Whether for long-term growth or balanced diversification, JHMM presents a compelling option for those looking to enhance their mid-cap exposure.