John Hancock has recently started an advertising campaign titled "Who Knew." The ad that really caught my eye said "You trust your experience, your instincts and the numbers." That line was followed by "And let's not forget Morningstar."
The Morningstar part gave me a chuckle. I have talked about the value of Morningstar's star rating system before. Essentially, studies have shown that the stars have no predictive value.
However, saying you should trust the numbers is what prompted this post. As we've done before with firms such as AllianceBernstein and Northern Trust, we'll take a look and see how John Hancock's performance stacks up against passive alternatives. (Thanks to my Right Financial Plan co-author Kevin Grogan for running the comparisons.)
John Hancock had almost $66 billion under management in its funds at the end of last year. The firm has access to tremendous resources, including a wide variety of investment managers (such as First Quadrant, GMO, John Hancock Asset Management, Pzena Investment Management, Robeco/Boston Partners, Wellington Management and Western Asset Management). Have the firm's resources enabled it to beat simple passive benchmarks? The following table is shows the returns of the firm's funds against comparable passive funds for the period 2001-2010.
The only asset class where John Hancock had any funds that beat the comparable DFA fund was in domestic large-cap growth/neutral. In that asset class, the John Hancock funds' average return was 1.9 percent, beating DFA and Vanguard by about 0.5 percent. In the other three asset classes, the DFA fund outperformed all John Hancock fund options. An equal-weighted John Hancock portfolio would have returned 4.3 percent per year while an equal-weighted DFA portfolio would have returned 5.8 percent per year.
This simply provides more evidence of the difficulty of identifying managers that will generate future alphas. John Hancock employs the best of the best active money managers and still hasn't been able to generate alpha. John Hancock has undoubtedly spent a lot of money on its most recent advertising campaign. Absent from the campaign is this simple comparison of John Hancock's products to comparable investment options, despite their instruction to "trust the numbers." John Hancock seems to be following the advice of Mad Men's Don Draper: "If you don't like what's being said, change the conversation."
If it's true that John Hancock is among the fastest growing fund families, then it'll become even harder for them to achieve above market returns by investing in concentrated positions. The market impact costs make such a strategy untenable, while the alternative strategy is to diversify more and to look more like an index fund (with higher costs).
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