Franklin Templeton launches equity and balanced ETFs

Managers screen for quality, value, momentum and low volatility.

Rudy Luukko 29 January, 2018 | 6:00PM

Franklin Templeton Investments Corp. expanded its line-up of exchange-traded funds today as it launched global dividend, emerging-markets equity and balanced ETFs on the Toronto Stock Exchange.

The equity ETFs are strategic-beta mandates based on proprietary rules-based indexes. They are managed by Dina Ting, head of global index portfolio management and senior portfolio manager, global ETFs, who is based in San Mateo, California. Her investment process applies four factor weightings: quality (50%), value (30%), momentum (10%) and low volatility (10%).

The quality factor incorporates metrics such as return on equity, earnings variability, cash return on assets and leverage. The value factor is based on ratios that include price-earnings, price to forward earnings, and price to book value, as well as dividend yield. The momentum factor's criteria include six-month and 12-month risk-adjusted price momentum. The low-volatility factor incorporates metrics such as historical beta, which is a measure of the volatility of a security relative to the total market.

Franklin LibertyQ Global Dividend Index will invest in a subset of the MSCI ACWI ex REITs Index. The strategy is designed to select higher-quality large and mid-cap stocks that will have above-average and sustainable dividends, and higher risk-adjusted performance relative to the MSCI ACWI ex REITs Index over the long term.

The screening excludes any stocks with negative year-over-year dividend-per-share growth in any of the last five years. Also excluded are securities with insufficient data to make these calculations. The securities selected must have five-year average monthly dividend yields that are no less than 1.2 times the average for the broad market index.

The ETF's holdings, consisting of stocks domiciled in both developed and emerging markets, will be reconstituted semi-annually. At the time of rebalancing, no company shall comprise more than 2% of assets.

The other new equity ETF is LibertyQ Emerging Markets Index. Its holdings will be large and mid-cap stocks that are a subset of the MSCI Emerging Markets Index, which has representation from 24 countries. At the time of quarterly rebalancing, the maximum weighting of any security will be capped at 1%.

The third new offering, Franklin Liberty Core Balanced, invests primarily in North American equity and fixed-income securities. It is actively managed by the company's Calgary-based Franklin Bissett Investment Management division.

The equities will be selected on the basis of a proprietary rules-based model that incorporates various historical and projected financial and stock-market data. The model factors in quantitative measures of quality, valuation, volatility and momentum.

According to the prospectus, all varieties of fixed-income and floating-rate securities may be held. The Bissett managers may also employ derivatives for hedging or non-hedging purposes, and hold a portion of the assets in cash reserves while seeking investment opportunities. The equity and fixed-income allocations will vary, according to the managers' assessment of relative valuations.

Management fees, which also cover most expenses, are 0.45% for the balanced and global dividend ETFs, and 0.55% for the emerging-markets fund.

ETF Symbol Mgmt fee (%)
Franklin Liberty Core Balanced FLBA 0.45
Franklin LibertyQ Global Dividend Index FLGD 0.45
Franklin LibertyQ Emerging Markets Index FLEM 0.55
Source: Franklin Templeton Investments Corp.

About Author

Rudy Luukko

Rudy Luukko  Rudy Luukko is a freelance writer who contributes to Morningstar.ca on topics involving fund industry trends and regulatory issues. He retired in May 2018 from his position as editor, investment and personal finance, at Morningstar Canada, where he had worked since 2004. He has also worked as an editor and writer for various general, specialty and institutional media, and he has co-authored courses for the Canadian Securities Institute. Follow Rudy on Twitter: @RudyLuukko.