Franklin Templeton has launched four
strategic beta exchange-traded funds, joining the ranks of Fidelity, Goldman Sachs and John Hancock in the rush for adviser dollars.
Goldman launched the first of its ActiveBeta suite last year, while Fidelity launched six smart beta ETFs in May. John Hancock introduced a suite of smart beta sector funds in October of last year and rolled out five more in March. Whether called active, smart or strategic beta, these ETFs use rules-based security selection unlike traditional capitalization-weighted indexes like the S&P 500.
Three of the Franklin LibertyQ funds are core multi-strategy funds, seeking a combination of quality, value, momentum and low-volatility stocks. All have an international flavor. They are:
• Franklin LibertyQ Global Equity ETF (FLQG), which aims for a higher risk-adjusted return than the MSCI ACWI Index.
• Franklin LibertyQ Emerging Markets ETF (FLQE), which looks for better risk-adjusted gains than the MSCI Emerging Markets index.
• Franklin LibertyQ International Equity Hedged ETF (FLQH), which seeks to beat the MSCI EAFE index on a risk-adjusted basis.
• Franklin LibertyQ Global Dividend ETF (FLQD), which looks for quality dividend income around the world.
The new suite of funds is a clear indication that Franklin wants to keep advisers happy, particularly in a
post-DOL fiduciary rule environment.
"Many of our clients have embraced the ETF wrapper for its benefits, including liquidity, tax efficiency and transparency, and now they are looking for more than what a traditional market cap-weighted index can offer," said Patrick O'Connor, head of global exchange traded funds for Franklin Templeton, in a statement. "LibertyQ offers investors our fundamental and quantitative expertise that drives our ability to seek specific outcomes with reduced risk, packaged within the ETF wrapper."
Dave Nadig, director of ETF research for FactSet Research, agrees. “They're clearly serious about being in the ETF business,” said Mr. Nadig. One indication: Franklin hired David Mann, who was an executive in the U.S. capital markets group of BlackRock's ETF unit, in February. Mr. Mann is a “significant talent,” Mr. Nadig said.
The company has $747 billion under management, 25% of which are in its five traditional open-end funds largest funds: Franklin Income, Templeton Global Bond, Mutual Global Discovery, Franklin Rising Dividends and Franklin Mutual Shares.
While those funds are relatively low-cost, the new LibertyQ funds would have lower costs, and would therefore be more attractive to advisers as well as retirement plans under the new
fiduciary rules. The LibertyQ Emerging Markets ETF has an expense ratio of 0.55%, for example, vs. Templeton Developing Markets' 1.68%. Other funds' expense ratios would be as low as 0.35%.
The challenge is whether advisers will embrace the new smart-beta products offered by Franklin and others. “Our experience would suggest that most advisers are taking a “wait and see” approach to new smart beta products, especially multi-factor products making claims of risk-adjusted outperformance — or, as their release says, 'seeks to achieve higher risk-adjusted returns,' Mr. Nadig said. “If you make those claims, you have to expect the market to hold you to them.”
Mr. O'Connor of Franklin thinks the San Mateo, Calif., company has the right formula. “This is complementary to our active management business,” Mr. O'Connor said. “There's a lot of evolution in the index space, and we want to be at the forefront.”
