Franklin Templeton To Jump Into Smart Beta ETF Jungle

by: Brian Haskin

With just one ETF currently in the market, Franklin Templeton looks to make a bigger splash with a new range of equity ETFs. The company recently filed paperwork with the Securities and Exchange Commission ("SEC") effectively announcing the firm's plan to launch a quartet of smart-beta ETFs. Each of the funds in the LibertyQ series will track custom, rules-based indices calculated by MSCI. The four ETFs slated for release are:

  • Franklin LibertyQ International Equity Hedged ETF
  • Franklin LibertyQ Emerging Markets ETF
  • Franklin LibertyQ Global Dividend ETF
  • Franklin LibertyQ Global Equity ETF

Multi-Factor Weighting

All four ETFs are "multi-factor," each with a different focus ranging from currency-hedging to dividend-themed. Instead of market cap, investments within the funds will be weighted according to a mix of quality, value, momentum, and low volatility.

The Franklin LibertyQ International Equity Hedged ETF will invest in qualifying large- and mid-cap stocks from Europe, Australasia and the Far East, with no individual stock accounting for more than 2% of the fund's total assets. The fund's goal is to provide superior risk-adjusted returns compared to the MSCI EAFE ("Europe, Australasia, and the Far East") Index, which is cap-weighted.

The new Emerging Markets ETF is somewhat similar, but with holdings culled from the MSCI Emerging Markets Index. Unlike the International Equity Hedged ETF, though, the Emerging Markets version is not currency-hedged, and its holdings may be more highly concentrated in individual countries, sectors, and individual holdings.

Franklin's new LibertyQ Global Dividend and Global Equity ETFs also follow customized MSCI indices, with the former boasting a dividend theme while the latter seeks to outdo the risk-adjusted performance of the MSCI ACWI ("All Country World Index").

Industry-Wide Movement

Barron's reports that a Franklin Templeton spokesperson wouldn't offer comment beyond what's in the SEC filing, but CEO Gregory Johnson said "our intention is to enter the marketplace with smart beta ETFs and rule-based ETFs" back in June, in a post-earnings call with analysts. In doing so, Franklin Templeton joins Legg Mason, John Hancock, and Goldman Sachs as recent boarders to the smart-beta bandwagon.

Management fees and ticker symbols for the new funds were not included in the filing.

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