DFA Vs. SPDR In Sector ETFs

Three years ago, the ETF marketplace was clogged with new factor fund launches. The result? There are nearly 130 factor-based portfolios that have floated since 2016. Not all have survived. Still, enough are now over the three-year seasoning threshold to be considered as institutional portfolio allocations.

Among them is a quintet of multifactor sector portfolios sub-advised by Dimensional Fund Advisors (DFA) and labeled under the John Hancock Investment Management brand. These ETFs were designed to compete against funds in the capitalization-weighted Select Sector SPDR universe targeting the utilities, industrials, basic materials, energy, and consumer staples segments.

With sector rotations weighing heavily on investors’ minds now, the Hancock products are being subjected to increased scrutiny. The big question is whether factor-based sector funds actually offer advantages over the better-known Select Sector SPDRs.

It turns out that the answer is both a yes and a no. A closer look reveals why.


The John Hancock Multifactor Utilities Fund (JHMU), like all the ETFs in the Hancock series, pulls its constituents from the nation’s 1,000 largest stocks, reaching deeper into mid-cap territory than the S&P 500-based SPDR universe. Here, JHMU tilts against the Utilities Select Sector SPDR (XLU). Looking through a factor screen, JHMU exhibits a barely positive size (“Small minus Big”) factor compared with XLU’s, which is decidedly negative. Along the quality (“Quality minus Junk”) spectrum, there’s another significant difference between the two ETFs: Both portfolios flaunt positive readings, but the Hancock product’s got a heftier number.

Going smaller and aiming for higher-quality stocks paid off handsomely for JHMU in the form of higher average returns and alpha over the past three years. On a cumulative, month-by-month basis, JHMU has stayed ahead of XLU 94% of the time.

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Disclosure: None.

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