John Hancock Multifactor Emerging Markets ETF (JHEM)

The John Hancock Multifactor Emerging Markets ETF (JHEM) holds stocks from developing economies across Asia, Latin America, Eastern Europe, and the Middle East, filtered by a multifactor screen that targets companies showing signs of both resilience and momentum — a more selective approach than a simple emerging-market index.

The emerging markets landscape

Emerging markets are the equity universes of countries in mid-stage economic development — nations like Brazil, India, Mexico, South Korea, Taiwan, and Thailand. They offer faster economic growth than developed nations, often with younger populations, rising middle classes, and industrializing economies. But they also carry higher volatility, currency risk (since earnings and dividends may need to be converted back to U.S. dollars), and political uncertainty. JHEM provides exposure to these potential opportunities by holding a diversified basket of stocks across multiple emerging economies.

The fund does not simply buy every emerging-market company or track a market-cap-weighted index. Instead, it applies a multifactor screening process. This means the fund looks for companies that exhibit several desirable characteristics at once — not just one factor in isolation. A stock might be cheap relative to its earnings (a value factor), but also showing improving momentum (a momentum factor), and paying a healthy dividend with low financial risk (quality and income factors). The fund holds companies that pass multiple tests, aiming for a portfolio of emerging-market stocks that are not just trading at a discount but also showing operational resilience and growth potential.

The four factors in the screen

The multifactor approach typically examines four dimensions of each company:

Value identifies stocks trading at low prices relative to their earnings, cash flow, or asset values — the idea that a cheap stock has more margin of safety. In emerging markets, value screening can surface entire sectors priced down due to investor pessimism about a region, yet fundamentally sound.

Momentum selects companies whose stocks have been rising or outperforming their peers in recent months, the insight being that positive price momentum often reflects real business momentum. An emerging-market company that has delivered earnings beats and rising cash flow will often show positive momentum; the reverse is true for declining businesses.

Quality screens for companies with strong balance sheets, stable earnings, high profit margins, and low financial leverage. A quality screen removes fragile companies that might look cheap but are cheap because they are weak or in declining industries. In emerging markets, quality filtering reduces exposure to overleveraged developers, unstable financials, and cyclical commodity producers vulnerable to boom-bust swings.

Dividend and income tilts the portfolio toward companies that generate sufficient cash to pay dividends to shareholders — again, a sign of financial health and cash generation rather than pure growth or leverage. This factor is less powerful in emerging markets than in developed ones (many emerging-market companies reinvest all earnings) but still signals stable, mature businesses.

Portfolio construction and concentration

JHEM holds perhaps 100 to 200 stocks spread across multiple emerging economies and sectors. The fund avoids concentration in any single country or industry. If one emerging market undergoes a political crisis or an industry enters a recession, the diversification limits the damage. However, because the fund screens for certain factors, it naturally tilts toward some sectors and away from others — for example, higher weighting toward established financial firms and consumer companies than toward early-stage or heavily leveraged developers.

Rebalancing occurs regularly, with the fund selling stocks that no longer meet the multifactor criteria and buying replacements that do. This active management — choosing which stocks to hold based on factor analysis rather than passive tracking — distinguishes JHEM from a plain emerging-market index fund. The index fund approach would hold every company proportional to its market capitalization; JHEM tilts toward a curated subset believed to offer better risk-adjusted returns.

Currency exposure and foreign exchange

An important feature of emerging-market investing is currency exposure. When a U.S. investor holds Brazilian or South Korean stocks, the returns depend partly on how those currencies perform against the dollar. If the Brazilian real weakens relative to the dollar, the dollar value of those holdings falls even if the stock price in reals is stable. JHEM is unhedged — the fund does not purchase foreign exchange contracts to lock in a fixed dollar value. This means investors are exposed to both the stock price movements and the currency shifts. In years when emerging-market currencies strengthen, JHEM can deliver outsized dollar returns; in years when they weaken, returns are dampened.

For investors, this currency exposure is a feature and a risk. The currency movements can amplify volatility. However, over long periods, currency fluctuations tend to partially offset each other, and the real economic returns of the underlying stocks dominate. An investor with a 20-year horizon may see less influence from currency swings than one trading in and out frequently.

Performance characteristics and timing

Emerging markets are cyclical. They perform exceptionally well in periods when global growth is strong and investors are willing to embrace risk — booming in the 2000s and again in 2021. They underperform in recessions or when capital flows reverse and investors flee back to developed-world safe havens. JHEM, as an emerging-market fund, rides this cycle. The multifactor screen does not eliminate this cyclicality; instead, it aims to select the highest-quality emerging-market companies, which are more likely to hold up during down cycles and outperform during up cycles.

The fund tends to be more volatile than a developed-market index like the S&P 500. That volatility can be an opportunity for investors with long time horizons, since higher risk has historically been paired with higher long-term returns. For investors nearing retirement or needing stability, emerging-market funds like JHEM are often better held as a satellite position rather than a core holding.

Costs and transparency

The expense ratio is typically moderate — higher than a passive broad emerging-market index fund (which might charge 0.10 percent) but lower than a high-fee actively managed mutual fund. The cost reflects the research and data systems required to score thousands of emerging-market companies against four factors and rebalance the portfolio.

The fund publishes its holdings and the factor scores regularly, allowing investors to see exactly which companies are held and understand why. This transparency is valuable for understanding what you own and whether the multifactor philosophy matches your own investment approach. The prospectus and factsheet outline the screening methodology, the factor definitions, and the historical performance both in bull and bear markets.