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John Hancock Classic Value Fund
Q1 ■ 2018
Quarterly commentary
company Cognizant Technology Solutions Corp., and ad agency Interpublic Group of Companies, Inc.
Portfolio changes
We established positions in four new names: Amgen, Inc., Merck & Co., Inc., Cardinal Health, Inc., and Edison International. Amgen, a leading biotechnology company, has come under pressure due to upcoming patent expirations and a slower-than-expected launch of one of its new drugs. Despite these concerns, we believe a significant portion of Amgen’s market value resides in existing drugs, providing significant downside protection at current valuation levels. Merck, a leading biopharma company, came under pressure because of recent news surrounding one of its recently launched drugs. We believe the market reaction provided the opportunity to purchase a diverse drug portfolio at an attractive price. We added Cardinal Health, a pharmaceutical distributor, to the portfolio as concerns about disruption in the pharmaceutical supply chain weighed on the stock price. We are attracted by the strong and stable returns of this business, negative working capital requirements, and long-term growth. Finally, we added California utility Edison International to the portfolio as uncertainty around liabilities from California wildfires weighed on the stock. We believe that current valuations reflect a draconian outcome for the utility and offered an attractive buying opportunity.
We exited positions Parker-Hannifin Corp., Seagate Technology PLC, Cigna Corp., and Hilton Worldwide Holdings, Inc., all on valuation. We continue to see meaningful valuation dispersion in the market, and our portfolio remains tilted toward cyclicals and remains broadly consistent with recent positioning.
Highlights
¡ Volatility returned to the markets during the quarter, as inflation pressures and a potential trade war between the United States and China rattled investors.
¡ The fund generated a negative return, but outpaced its benchmark, the Russell 1000 Value Index.
¡ Stock selection in financials, energy, and healthcare were the largest detractors.
Market review and outlook
The first quarter brought a notable pickup in volatility, as the markets were unsettled by emerging inflation pressures, which were seen as a possible impetus for the U.S. Federal Reserve (Fed) to raise interest rates more aggressively, and questions about the direction of U.S. trade policy. These developments led to weak returns for the key equity indexes, together with wide day-to-day performance swings as investors struggled to digest the shifting headlines. Growth stocks outperformed value stocks by a significant margin.
Contributors and detractors
The fund posted a loss, but beat its benchmark. The top individual detractors were software company Micro Focus International PLC and banking giant Wells Fargo & Co. Micro Focus preannounced a greater-than-expected revenue decline in its software business and saw the departure of its CEO. Wells Fargo shares were weak on unprecedented regulatory actions by the Fed, including a cap on asset growth until the order is lifted. We continue to believe that the company’s franchise remains strong and that the company is making progress in its risk management practices.
Other detractors included banking company Citigroup Inc., asset management firm Franklin Resources, Inc., and pharmaceutical distributor McKesson Corp.
The top individual contributors included enterprise hardware firm Hewlett Packard Enterprise Co., information technology services
A: PZFVX C: JCVCX I: JCVIX R1: JCVRX R2: JCVSX R3: JCVHX R4: JCVFX R5: JCVVX R6: JCVWX
Seeks: Long-term growth of capitalUse for: Deep value strategy
Morningstar category: Large Value
Lipper category: Multi-Cap Value Funds
This commentary reflects the views of the portfolio managers through 3/31/18. The managers’ views are subject to change as market and other conditions warrant. No forecasts are guaranteed. This commentary is provided for informational purposes only and is not an endorsement of any security, mutual fund, sector, or index. Pzena Investment Management, LLC, John Hancock Advisers, LLC, and their affiliates, employees, and clients may hold or trade the securities mentioned in this commentary. Diversification does not guarantee a profit or eliminate the risk of a loss.
MF404118 38MMC 4/18
1 Listed holdings are a portion of the fund’s total and may change at any time. They are not recommendations to buy or sell any security. Data is expressed as a percentage of net assets and excludes cash and cash equivalents.
2 On 11/8/02, the fund acquired all of the assets of the Pzena Focused Value Fund (predecessor fund), pursuant to a reorganization. Performance prior to 11/8/02 reflects the performance of the predecessor fund.3 The Russell 1000 Value Index tracks the performance of publicly traded large-cap companies in the United States with lower price-to-book ratios and lower forecasted growth values. It is not possible to invest directly in an
index.
John Hancock Funds, LLC n Member FINRA, SIPC601 Congress Street n Boston, MA 02210-2805 n 800-225-5291 n jhinvestments.com
NOT FDIC INSURED. MAY LOSE VALUE. NO BANK GUARANTEE. NOT INSURED BY ANY GOVERNMENT AGENCY.
AVERAGE ANNUAL TOTAL RETURNS2 (%)
QTD YTD 1 year 3 year 5 year 10 yearLife of
fundLife of
fund date
Class I (without sales charge) –1.72 –1.72 11.92 10.11 12.36 7.70 8.41 11/11/02
Class A (without sales charge) –1.78 –1.78 11.64 9.82 12.06 7.36 8.38 6/24/96
Class A (with 5% maximum sales charge) –6.70 –6.70 6.05 7.97 10.91 6.81 8.12 6/24/96
Russell 1000 Value Index3 –2.83 –2.83 6.95 7.88 10.78 7.78 8.75 —
Expense ratios (%) Total
Class I 0.92
Class A 1.18
The past performance shown here reflects reinvested distributions and the beneficial effect of any expense reductions, and does not guarantee future results. Returns for periods shorter than one year are cumulative, and results for other share classes will vary. Shares will fluctuate in value and, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance cited. For the most recent month-end performance, visit jhinvestments.com.
WHAT YOU SHOULD KNOW BEFORE INVESTING
Value stocks may decline in price. Foreign investing, especially in emerging markets, has additional risks, such as currency and market volatility and political and social instability. A portfolio concentrated in one sector or that holds a limited number of securities may fluctuate more than a diversified portfolio. Please see the fund’s prospectus for additional risks.
Request a prospectus or summary prospectus from your financial advisor, by visiting jhinvestments.com, or by calling us at 800-225-5291. The prospectus includes investment objectives, risks, fees, expenses, and other information that you should consider carefully before investing.
Q1 ■ 2018All data as of 3/31/18
TEN LARGEST HOLDINGS1 (%)Ford Motor Company 4.32
Hewlett Packard Enterprise Company 3.91
Royal Dutch Shell PLC 3.77
Citigroup, Inc. 3.64
Cognizant Technology Solutions Corp. 3.58
Mylan NV 3.56
Voya Financial, Inc. 3.40
Bank of America Corp. 3.39
Morgan Stanley 3.33
Oracle Corp. 3.27
TOTAL 36.17
MANAGED BY
Richard S. Pzena On the fund since 1996Investing since 1980
Benjamin S. Silver, CFA, CPA On the fund since 2012Investing since 1991
John J. Flynn On the fund since 2017Investing since 2000
John Hancock Classic Value Fund