LESSONS LEARNED
Diversification isn’t dead, it’s just misunderstood
One investing concept that has been almost universally misunderstood is the
seemingly simple principle of diversification. Diversification isn’t so much about
the number of ­investments in a portfolio, but how different those investments
are from one another.
Diversification is more than just
owning large-cap stocks or an
S&P 500 Index fund. By working with
your financial professional to create
a truly diverse portfolio, you can help
In today’s volatile markets, holding a properly diversified portfolio is more
important than ever. Diversification can allow you to participate in the upside,
when particular asset classes or investment styles are in favor, and it can help
to dampen losses when certain investments fall out of favor.
smooth out the ride to reaching your
long-term goals.
The 2000s were a great example of the need for diversification in a portfolio. That 10-year period is often referred to as the lost
decade because U.S. equities posted a rare loss over that stretch. But as you can see in the chart below, there were plenty of other
markets and asset classes that posted solid gains over that same time period.
While diversification does not guarantee a profit or eliminate the risk of a loss, as a fundamental investment principle, it is alive and
well. Owning a variety of asset classes—rather than simply a variety of stocks—would have gone a long way toward taking some
of the sting out of the lost decade, and it is one of the best measures for positioning a portfolio for the next stock market downturn.
Over the lost decade, large-cap returns were negative, but most others showed positive returns1
Average annual returns by category 2000–2009 (%)
14
12
10.5
11.8
10.5
9.8
10
8
6.2
6
6.2
6.6
4.5
4
3.5
3.5
3.8
1.2
2
0
–2
–1.0
Large cap
Int’l
Long-term
gov’t
Global
bonds
TIPS
High yield
Loans
U.S. real
estate
Natural
Global
Int’l small Emerging
resources real estate
cap
markets
Currency
1Morningstar Direct, as of 12/31/09. Performance numbers reflect a total return average of funds in each Morningstar category, as applicable, assume reinvestment of all distributions, and
do not reflect payment of any sales charges. Large cap is represented by the S&P 500 Index, which tracks the performance of 500 of the largest publicly traded companies in the United
States. International is represented by the MSCI EAFE Index, which tracks the performance of publicly traded large- and mid-cap stocks of companies in those regions. Total returns are
calculated gross of foreign withholding tax on dividends. Long-term government is represented by the Barclays U.S. Government Bond Index, which tracks the performance of U.S. Treasury
and government agency bonds. Global bonds is represented by the Citigroup World Government Bond ex-U.S. Index, an unmanaged index consisting of approximately 600 high-quality
bonds issued by 17 different foreign countries. TIPS is represented by the Morningstar inflation-protected bond category average. High yield is represented by the Morningstar high-yield
bond fund category average. Loans is represented by the Morningstar bank loan fund category average. U.S. real estate is represented by the Wilshire U.S. Real Estate Securities Index, an
unmanaged index that measures the performance of publicly traded U.S. real estate securities. Natural resources is represented by the Morningstar natural resources fund category average.
Global real estate is represented by the Morningstar global real estate fund category average. International small cap is represented by the Morningstar foreign small/mid growth fund
category average. Emerging markets is represented by the MSCI Emerging Markets Index, which tracks the performance of publicly traded large- and mid-cap emerging-market stocks.
Currency is represented by the Morningstar multicurrency fund category average. It is not possible to invest directly in an index. Past performance does not guarantee future results.
Two John Hancock Investments funds to help deepen diversification
John Hancock Global Absolute Return Strategies Fund
John Hancock Balanced Fund
What is it?
The fund combines a variety of asset classes and strategies to seek
to profit from inefficiencies in global markets while providing positive
absolute returns over a full market cycle
A broadly diversified fund that combines stocks and bonds from a
wide range of sectors into a single, actively managed portfolio
Why this fund?
Positive absolute returns: Targeting positive returns over
all market cycles with significantly less volatility than
traditional equities
Collaborative selection: Leveraging the entire John Hancock Asset
Management team to seek promising investment ideas
Diversification potential: Diversified, risk-managed portfolio
of uncorrelated investments, including directional and relative
value strategies
Deep and experienced team: Over 50 investment professionals
dedicated to the management of the fund’s multi-asset strategy
Share classes
A: JHAAX C: JHACX
Morningstar category
Multialternative
Morningstar ratings
(Class A as of 12/31/15)
I: JHAIX
R6: JHASX
Reduced volatility: Mandated to hold a diverse combination of
equities and bonds designed to help reduce the overall volatility of
the portfolio
One-stop diversification: Single, professionally managed option for
investors looking to diversify their portfolio holdings
A: SVBAX
C: SVBCX
I: SVBIX
R6: JBAWX
Moderate allocation
Overall
Load waived
Number of funds
Overall
Load waived
Number of funds
HHH
HHHH
240
HHHH
HHHH
865
How diversified is your portfolio? Review your current holdings with your financial
professional today. For more information, please visit jhinvestments.com.
For each fund with at least a 3-year history, Morningstar calculates a Morningstar rating based on a Morningstar Risk-Adjusted Return that accounts for variation in a fund’s monthly performance
(including effects of sales charges, loads, and redemption fees), placing more emphasis on downward variations and rewarding consistent performance. The top 10.0% of funds in each category,
the next 22.5%, 35.0%, 22.5%, and bottom 10.0% receive 5, 4, 3, 2, or 1 star(s), respectively. (Each share class is counted as a fraction of one fund within this scale and is rated separately, which
may cause slight variations in the distribution percentages.) Load-waived ratings for Class A shares should only be considered by investors who are not subject to a front-end
sales charge. Contact your financial professional to determine whether you are eligible to purchase Class A shares without paying the front load. Other share classes may be rated differently.
The overall Morningstar rating for a fund is derived from a weighted average of the performance associated with its 3-, 5-, and 10-year (if applicable) Morningstar rating metrics. On a load-waived
and overall basis, John Hancock Global Absolute Return Strategies Fund was rated 4 stars and 3 stars out of 240 funds for the 3-year period, respectively. On a load-waived and overall basis,
John Hancock Balanced Fund was rated 4 and 3 stars out of 865 funds, 3 and 3 stars out of 745 funds, and 5 and 4 stars out of 505 funds for the 3-, 5-, and 10-year periods, respectively. Past
performance does not guarantee future results.
Diversification does not guarantee a profit or eliminate the risk of a loss.
Absolute return funds are not designed to outperform stocks and bonds in strong markets. There is no guarantee of a positive return, of the fund
achieving its objective, or that volatility-reducing strategies will be successful. The use of hedging and derivatives could produce disproportionate
gains or losses and may increase costs. Liquidity—the extent to which a security may be sold or a derivative position closed without negatively
affecting its market value, if at all—may be impaired by reduced trading volume, heightened volatility, rising interest rates, and other market
conditions. Currency transactions are affected by fluctuations in exchange rates. Foreign investing, especially in emerging markets, has additional
risks, such as currency and market volatility and political and social instability. Investments in higher-yielding, lower-rated securities include a higher
risk of default. The stock prices of midsize and small companies can change more frequently and dramatically than those of large companies.
The value of a company’s equity securities is subject to change in the company’s financial condition and overall market and economic conditions.
Fixed-income investments are subject to interest-rate and credit risk; their value will normally decline as interest rates rise or if a creditor is unable
or unwilling to make principal or interest payments. Investments in higher-yielding, lower-rated securities include a higher risk of default. Mortgageand asset-backed securities may be sensitive to changes in interest rates, and may be subject to early repayment and the market’s perception of
issuer creditworthiness. Please see the funds’ prospectuses for additional risks.
A fund’s investment objectives, risks, charges, and expenses should be considered carefully before investing. The prospectus
contains this and other important information about the fund. To obtain a prospectus, contact your financial professional, call
John Hancock Investments at 800-225-5291, or visit jhinvestments.com. Please read the prospectus carefully before investing
or sending money.
Connect with John Hancock Investments:
@JH_Investments | jhinvestmentsblog.com
John Hancock Funds, LLC Member FINRA, SIPC
601 Congress Street Boston, MA 02210-2805 800-225-5291
jhinvestments.com
NOT FDIC INSURED. MAY LOSE VALUE. NO BANK GUARANTEE. NOT INSURED BY ANY GOVERNMENT AGENCY.
MF274030
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