John Hancock's JHML: A Value Investor's Assessment of Its Cost and Competitive Moat

John Hancock's JHML is a passively managed ETF launched in 2015, designed to track a multifactor index of large-cap U.S. stocks. Its core strategy combines signals for quality, value, momentum, and size to construct a portfolio of roughly 600 companies. On the surface, this systematic approach aims to capture multiple sources of return. Yet, from a value investor's perspective, the fund's structure presents a clear tension between its stated goal of outperformance and the tangible costs that erode any potential edge.

The most immediate hurdle is cost. JHML charges an annual expense ratio of 0.29%, a figure that is three times the cost of a basic S&P 500 index fund. For a passive vehicle, this premium is difficult to justify. The principle of compounding works both ways: while a low-cost index fund lets investors keep nearly all of the market's return, a higher fee immediately reduces the net return available for reinvestment. This creates a significant performance hurdle that the multifactor strategy must clear just to break even, let alone deliver a meaningful alpha.

More critically, the multifactor approach itself lacks the clarity and durability of a classic value moat. A true competitive advantage-like a brand, a patent, or a network effect-allows a company to consistently earn returns above its cost of capital. JHML's "moat" is a set of quantitative screens applied to a broad index. It is a process, not a business. This raises a fundamental question: does this systematic tilt to certain factors provide a reliable, long-term edge over the simple, low-cost alternative of buying the entire market? Recent results suggest not. Despite its sophisticated construction, the fund has traded the S&P 500 recently, indicating the multifactor premium has not materialized consistently for investors.

The portfolio's composition further illustrates the mismatch between its growth-oriented tilt and a value-focused income need. With technology representing 26% of the portfolio, it is heavily weighted toward mega-cap growth names. This drives price appreciation but produces minimal dividends, forcing retirees to sell shares for income-a strategy that undermines the tax efficiency of its low turnover. For a value investor, the goal is to own businesses with durable cash flows at fair prices. JHML, by concentrating in a single sector and offering little yield, fails to provide the stable, income-generating foundation that many seek. The fund's structure, therefore, is less a moat and more a series of filters that may not deliver the promised return for the price paid.

Performance, Portfolio, and the Income Reality

The fund's historical returns tell a clear story of underperformance. Over the past five years, JHML has delivered an annualized return of 12.4%, while its ten-year return stands at 13.4%. Both figures trail the broader market, a fact that directly challenges the fund's core justification. The multifactor strategy was meant to outperform, but the numbers show it has not. This persistent lag is particularly concerning given the fund's higher cost, which creates a measurable hurdle that must be cleared just to match the market's return.

The portfolio's composition explains much of this result. Technology represents a dominant 26% of the portfolio, with mega-cap growth names like Nvidia, Apple, and Microsoft accounting for nearly 12% combined. This heavy concentration drives price appreciation when tech is strong but produces minimal dividends. In contrast, traditional income sectors like utilities and consumer staples receive only token allocations. The result is a portfolio that offers growth tilt but lacks the yield and stability that many investors, especially retirees, seek. This sector mix also introduces volatility; the fund experienced a 6.6% drawdown in late 2025, demonstrating its susceptibility to market swings.

This brings us to the critical income reality for retirees. The fund's modest yield forces a counterproductive strategy: selling shares to generate cash flow. This undermines the very tax efficiency that the fund's low 4% annual turnover rate is designed to provide. When a retiree sells appreciated shares, they trigger capital gains taxes. The low turnover was meant to minimize these taxable events, but the need to sell shares for income negates that benefit. In practice, the fund behaves more like a total return vehicle than an income generator, leaving retirees exposed to sequence-of-returns risk during downturns.

The bottom line is a portfolio that fails to deliver on multiple fronts. It trails its benchmark, concentrates in a single sector, offers little yield, and forces a tax-inefficient withdrawal strategy. For a value investor, the goal is to own businesses that compound cash flows at fair prices. JHML, by tilting toward growth at the expense of income and stability, does not meet this standard. It is a growth-tilted total return fund with a value-like expense structure, creating a mismatch that is difficult to justify.

The Comparative Moat: JHML vs. Simpler Alternatives

The true test of any investment vehicle is how it stacks up against simpler, lower-cost alternatives. For a value investor, the choice often comes down to a trade-off between a higher-priced, complex strategy and a cheaper, more straightforward one. JHML's multifactor approach fails this test on both cost and performance.

The fund's 0.29% annual expense ratio creates a high hurdle. This fee is three times that of a basic S&P 500 index fund, immediately reducing the net return available for compounding. Yet, the fund has not consistently cleared this bar. Despite its sophisticated construction, JHML has traded the S&P 500 recently, indicating the multifactor premium has not materialized. In a world where a simple, low-cost index fund can capture the market's return, JHML must deliver a significant alpha just to break even. The evidence suggests it has not.

This cost disadvantage is even more glaring when compared to targeted strategies that serve a retiree's income needs. Consider the SPDR Portfolio S&P 500 High Dividend ETF (SPYD). It offers a 4.7% yield with a fee of just 0.07%. For a retiree, this presents a stark alternative: a fund that is designed to generate income at a fraction of JHML's cost. SPYD's strategy is clear and focused-buy the highest-yielding S&P 500 stocks. It lacks the complexity of JHML's multifactor screens, but it delivers the tangible benefit of a much higher income stream without the tax inefficiency of selling shares.

From a value perspective, the question is whether JHML's multifactor approach provides a durable competitive edge. The answer appears to be no. The fund's strategy is a set of quantitative filters applied to a broad index. It is a process, not a business with a moat. In contrast, SPYD's approach, while sacrificing some growth potential, offers a more predictable and lower-cost path to income. The trade-off is clear: SPYD offers a wider, more reliable moat for income generation at a much lower price.

The bottom line is one of opportunity cost. By paying a premium for a strategy that has trailed the market, investors are forgoing the chance to deploy their capital more efficiently. A retiree could either hold a simple, low-cost index fund and accept the market's return, or they could choose a targeted dividend strategy like SPYD to generate income. JHML, by offering neither the simplicity of the index nor the focused income of SPYD, occupies a middle ground that provides no clear advantage. In the long run, the compounding power of lower fees and more reliable income will likely outweigh the promise of a multifactor tilt that has yet to deliver.

Catalysts, Risks, and What to Watch

For a retiree considering JHML, the investment thesis hinges on a single, persistent risk: underperformance versus simpler, higher-yielding alternatives. The fund's 0.29% annual expense ratio creates a high hurdle, and the evidence shows it has traded the S&P 500 recently. This means the multifactor premium has not materialized, leaving investors with a growth-tilted total return vehicle at a cost that is three times that of a basic index fund. The opportunity cost is clear. A retiree could instead hold a low-cost S&P 500 fund and accept the market's return, or they could choose a targeted dividend strategy like SPYD for a 4.7% yield at a fee of just 0.07%. JHML offers neither the simplicity of the index nor the focused income of SPYD, creating a middle ground with no clear advantage.

The primary catalyst for reconsideration would be a sustained period of outperformance that justifies its premium fee. However, the historical data does not support this. The fund's trailing returns and its recent underperformance suggest the multifactor tilt has not provided a reliable, long-term edge. For a value investor, a catalyst is not a sudden news event but a change in the fundamental economic reality. In this case, that would mean the fund's portfolio composition or factor exposure begins to consistently beat the market, which has not been the pattern.

Retirees should monitor two specific factors that could impact the fund's stability as an income source. First, watch for shifts in the fund's sector concentration. Technology currently represents a dominant 26% of the portfolio, with mega-cap growth names driving price appreciation but producing minimal dividends. If this concentration were to increase further, it would exacerbate the income problem and make the portfolio more vulnerable to sector-specific downturns. Second, monitor the yield profile. The fund's modest yield forces a tax-inefficient strategy of selling shares for income, which undermines the benefit of its 4% annual turnover rate. If the yield were to decline further, the pressure to sell appreciated shares would intensify, increasing the portfolio's effective tax burden.

The bottom line is one of compounding friction. The fund's higher cost and its growth-tilted, low-yield structure create a setup where the retiree's capital is working against them. The low turnover is designed to preserve capital, but the need to sell shares for income negates that benefit. For retirees, the goal is to generate stable cash flow from a portfolio that preserves principal. JHML's current design makes this harder, not easier. The risks are not speculative; they are the direct result of a strategy that has failed to deliver its promised premium while charging a premium price.