Do John Hancock Funds Add Value For Investors?

August 24, 2015

by Larry Swedroe

PDF | Page 2

My series evaluating the performance of the market’s most prominent actively managed mutual fund families continues today with an in-depth analysis of the John Hancock Group.

Why John Hancock? In February, the firm ranked second (out of 48) on Barron’s annual list of best-performing mutual fund families for the latest 10-year period. For the latest five-year period, John Hancock was ranked 18th (out of 56 fund families). And in the one-year rankings, based on 2014 performance, the firm placed 40th (out of 65 fund families), although one-year performance really should be treated as anecdotal in nature.

According to Morningstar, as of July 31, 2014, the John Hancock family of funds had $184 billion in assets under management, almost double the $94 billion that the firm had at the end of 2011. While John Hancock’s total assets under management don’t quite qualify it for the list of the top 10 mutual fund managers by size, they are still one of the market’s largest fund families, and their results impact lots of investors.

The John Hancock investment approach

John Hancock is quite clear on its investment approach. In fact, their website states: “Our approach to money management begins and ends where it should: with investors. We build funds based on investor needs, then go anywhere in the world to find specialized managers with proven track records in those strategies. As one of the longest-tenured manager of managers, we apply vigorous oversight to ensure that our funds continue to meet our uncompromising standards and serve the best interests of our shareholders.”

The firm goes on, asserting that its “manager-of-managers approach is designed to marry the innovation, agility, and conviction of boutique managers with the oversight and risk controls of a large, institutional asset manager.”

Finally, the firm states that it is a “premier asset manager” with: a more than 25-year track record of employing a “unique manager-of-manager approach,” more than 250 meetings every year to identify proven managers, more than 165 investment professionals dedicated to research and oversight and more than 100 in-person oversight meetings with managers annually. The firm adds that it has 73 proven portfolio teams with 27 elite asset managers overseeing 105 investment strategies.

That certainly represents a tremendous amount of resources at the fund family’s disposal. There is, however, a critical question: Has all this effort and expense added or subtracted value?

To find the answer, I’ll compare the performance of John Hancock’s actively managed equity funds to the similar offerings from two prominent providers of passively managed funds, Dimensional Fund Advisors (DFA) and Vanguard. (Full disclosure: My firm, Buckingham, recommends DFA funds in constructing client portfolios.)

To keep the list to a manageable number of funds and to ensure that I examine long-term results through full economic cycles, I will analyze the 15-year period ending June 30, 2015. Furthermore, we’ll use the lowest-cost shares available for the full period when more than one class of fund is available. In cases where John Hancock has more than one fund in an asset class, we’ll use the average return of those funds in our comparison.

The table below shows the performance of eight funds offered by John Hancock in five domestic asset classes and one international asset class. As you review the results, keep in mind that I’m injecting some hindsight bias into my analysis. There is no way anyone could have known that the John Hancock family of funds would end up earning the number-two spot on Barron’s most recent list of top-performing firms for the prior 10-year period.

John Hancock Funds

PDF | Page 2