October 31, 2024
What makes ETFs tax efficient?
ETFs may offer some advantages for tax-sensitive investors. We take a look under the hood of this investment vehicle to explain why these advantages are there.
Exchange-traded funds
ETFs are playing a major role in the evolution of investing. We offer investors ETFs that are on the leading edge of this change.
The evolution of ETFs
ETF investing used to be just about tracking an index as cheaply and passively as possible. Today, ETFs run the gamut from passive to strategic beta to a full range of increasingly specialized active strategies. ETFs have also branched out beyond equities to other asset classes, such as fixed income, commodities, and alternatives.
Redefining ETFs
What is an ETF? An ETF is a basket of securities that trades on an exchange like an individual stock. The key benefits of ETFs include tax efficiency, lower fees, transparency, and liquidity.
Our evolution
The ETF market has continued to expand beyond passive investing options, and so has our product suite. We offer a wide array of strategic beta equity ETFs as well as active ETFs for investors pursuing income.
1 Passive investing
- Typically tracks a market-cap-weighted index
- Market cap weighting may result in overconcentration
- Exposure to specific segments of the market or the entire market
- Little or zero tracking error
2 Strategic beta
- Tracks a rules-based index that isn't focused on market cap weight
- May avoid potential concentration of market cap weighting
- Combines elements of passive and active management
- Often based on academic research
- Higher tracking error than pure passive
- May be based on single factors (size, relative value, profitability, momentum, volatility, etc.) or may combine these factors in a multifactor strategy
- May be used for core portfolio positions, specific outcomes, and to enhance passive allocations
3 Active investing
- Portfolio manager investment decisions and security selection, not tied to a market-cap-weighted index
- Greater manager flexibility based on assessment of current market environment
- Potential for outperformance/underperformance
- Higher tracking error than passive and strategic beta
- Typically higher turnover
- ETF may have less portfolio transparency (semitransparent active ETFs)
Key events in the evolution of U.S. ETFs
-
1993
First ETF listed
-
2000
First strategic beta ETF
-
2002
First bond ETF
-
2008
First active ETF
-
2011
First multifactor ETF
-
2020
First semitransparent active ETF
Important disclosures
Source: Investment Company Institute, Morningstar.
Key metrics of the ETF universe
$8.1T
combined assets of all ETFs listed in the United States¹
3,367
ETFs listed in the United States¹
$131B
in 2023 marked a new record for net flows into actively managed ETFs²
543
new ETFs launched in 2023³
74%
of advisors said performance was the most important ETF attribute to them⁴
$598B
in inflows of continued interest in actively managed ETFs²
Important disclosures
1 ETF.com, as of 12/31/23. 2 “ETFs Cap Off Another Year of Inflows in Style” Morningstar, 1/2/24. 3 “ETF Industry Shatters Launch Record in 2023”, ETF Trends, 1/2/24. 3 "ETF Industry Shatters Launch Record in 2023”, ETF Trends, 1/2/24. 4 Cerulli, 2023.
More financial professionals and investors are using ETFs
Due to their low expenses, tax efficiency, and overall transparency, ETFs are frequently favored over traditional mutual funds by investment professionals.
Beyond passive: strategic beta and active ETFs
ETFs have evolved to include a variety of ways for investors to gain market exposure, from the pure beta of traditional index strategies to fully active strategies that don’t adhere to an index at all. Strategic beta is thought of as a middle ground that combines the rules-based discipline of passive investing with the potential outperformance of active management.
Advisor adoption of ETFs is growing
Financial professionals are adding ETFs to their tool kits and investor portfolios as more strategies and asset classes become available. For example, more advisors are using ETFs for specific strategies, including sectors, fixed-income asset classes, alternatives, and thematic investing.
90% of advisors recommend and use ETFs with their clients.⁵
Important disclosures
5 "2023 Trends in Investing Survey," Journal of Financial Planning.
ETF tax efficiency
Of all the ETFs managed by the 15 largest U.S. sponsors, only 1.3% of their ETFs were expected to distribute capital gains to their shareholders for 2023.⁶ One reason ETFs are tax efficient is that they’re bought and sold on an exchange, so investors typically don’t interact directly with the ETF. In contrast, when a mutual fund experiences a net redemption, it has to sell securities to raise cash to give back to investors. This can result in a capital gain for the fund that must be distributed to shareholders. Research has shown that ETFs can offer higher post-tax returns relative to equivalent mutual funds.⁷
What you need to know about buying/selling ETFs
- Understand why net asset value (NAV) premiums/discounts may occur
- Avoid trading at the market open/close
- Use limit orders
Important disclosures
6 "Few ETFs Are Paying Out Capital Gains in 2023," Morningstar, 12/1/23. 7 "How Much More Tax-Wise Are ETFs vs. Mutual Funds?," the Wall Street Journal, 2/4/23.
Our multimanager approach
We believe our multimanager approach to ETFs allows us to deliver some of the world’s best managers in a low-cost, transparent structure. Our team of 200+ professionals who specialize in manager research and oversight vets more than 200 new strategies and holds over 100 in-person oversight meetings with managers annually.
Manulife Investment Management is an established asset manager with global resources and expertise extending across equity, fixed income, and alternative investments as well as asset allocation strategies.
Dimensional Fund Advisors is a pioneer of multifactor investing. The company has applied ideas rooted in academia for decades and, today, it’s one of the most well-respected managers in the field. Dimensional’s systematic approach is backed by insight gained from decades of academic research and experience implementing rules-based strategies in competitive markets.
Dimensional is a trademark of Dimensional Fund Advisors LP.
Boston Partners is a specialist in traditional value equity investing based on a time-tested investment process developed in the 1980s that emphasizes investing in companies with attractive value characteristics, strong business fundamentals, and positive business momentum.
Marathon Asset Management is an established global credit manager that invests across private and public credit markets through multiple credit cycles.
Explore our ETFs
| Fund | Managed by | Morningstar category | Use for |
|---|---|---|---|
|
JHCR
Core Bond ETF
|
Managed by Manulife Investment Management | Morningstar category Intermediate Core Bond | Use for High-quality income opportunities |
|
JHCP
Core Plus Bond ETF
|
Managed by Manulife Investment Management | Morningstar category Intermediate Core-Plus Bond | Use for Diversifying income holdings |
|
JHCB
Corporate Bond ETF
|
Managed by Manulife Investment Management | Morningstar category Corporate Bond | Use for High-quality income opportunities |
| Managed by Boston Partners | Morningstar category Foreign Large Value | Use for Core international holding | |
| Managed by Manulife Investment Management | Morningstar category Muni National Intermediate | Use for Tax planning strategies | |
| Managed by Manulife Investment Management | Morningstar category Large Blend | Use for Core equity holding | |
|
JHHY
High Yield ETF
|
Managed by Marathon Asset Management | Morningstar category High Yield Bond | Use for High current income |
| Managed by Manulife Investment Management | Morningstar category Foreign Large Value | Use for Diversifying sources of income | |
| Managed by Manulife Investment Management | Morningstar category Intermediate Core-Plus Bond | Use for High-quality income opportunities | |
| Managed by Dimensional Fund Advisors | Morningstar category Foreign Large Blend | Use for Core international holding | |
| Managed by Dimensional Fund Advisors | Morningstar category Diversified Emerging Markets | Use for Core international holding | |
| Managed by Dimensional Fund Advisors | Morningstar category Large Blend | Use for Core equity holding | |
| Managed by Dimensional Fund Advisors | Morningstar category Mid-Cap Blend | Use for Core equity holding | |
| Managed by Dimensional Fund Advisors | Morningstar category Small Blend | Use for Core equity holding | |
|
JHPI
Preferred Income ETF
|
Managed by Manulife Investment Management | Morningstar category Preferred Stock | Use for Diversifying sources of income |
| Managed by Manulife Investment Management | Morningstar category Large Value | Use for Diversifying sources of income |
Important disclosures
Fundamental All Cap Core ETF:
This ETF is different from traditional ETFs. Traditional ETFs tell the public what assets they hold each day. This ETF will not. This may create additional risks for your investment. For example: You may have to pay more money to trade the ETF’s shares. This ETF will provide less information to traders, who tend to charge more for trades when they have less information. The price you pay to buy ETF shares on an exchange may not match the value of the ETF’s portfolio. The same is true when you sell shares. These price differences may be greater for this ETF compared to other ETFs because it provides less information to traders. These additional risks may be even greater in bad or uncertain market conditions. The ETF will publish on its website each day a “Tracking Basket” designed to help trading in shares of the ETF. While the Tracking Basket includes some of the ETF’s holdings, it is not the ETF’s actual portfolio. The differences between this ETF and other ETFs may also have advantages. By keeping certain information about the ETF secret, this ETF may face less risk that other traders can predict or copy its investment strategy. This may improve the ETF’s performance. If other traders are able to copy or predict the ETF’s investment strategy, however, this may hurt the ETF’s performance. For additional information please refer to the fund’s prospectus and/or statement of additional information.
Investing involves risks, including the potential loss of principal. These products carry many individual risks, including some that are unique to each fund. Please see the funds' prospectuses for additional risks. This material is not intended to be, nor shall it be interpreted or construed as, a recommendation or providing advice, impartial or otherwise. John Hancock Investment Management and its representatives and affiliates may receive compensation derived from the sale of and/or from any investment made in its products and services. John Hancock ETF shares are bought and sold at market price (not NAV), and are not individually redeemed from the fund. Brokerage commissions will reduce return.
Key metrics flyer
This flyer provides details on key data for each John Hancock ETF, including tickers and expenses.
ETF brochure
This brochure outlines the trends in ETF investing and how John Hancock Investment Management sits at the leading edge of ETF innovation.
Related viewpoints
September 20, 2024
What's missing from passive muni ETFs?
Passive muni bond ETFs are widely favored, dominating the category while offering low-cost exposure to muni bonds. Find out what’s missing from these popular ETFs.
July 30, 2024
A look at the rise of active ETFs
The number of active ETFs, and assets managed within these funds, has soared since the ETF Rule was adopted in 2019. We explore what's driving this trend.
Learn more
Investors: Ask your financial professional how adding ETFs can help you better position your portfolio for the long term.
Financial professionals: Learn more about how ETFs combine some of the most attractive features of active and passive strategies.
Request a meeting with a John Hancock Investment Management business consultant
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