Going Global with our New Lineup of ETFsJan 29, 2018

Hello and welcome to the new LibertySharesTM Blog! I am excited about creating this forum to discuss all things related to Exchange Traded Funds (ETFs). My name is Ahmed Farooq, Vice President—ETF Business Development for Franklin Templeton Investments.

First, a bit of background on me. I started my ETF career in 2007, when the Canadian ETF industry was in its infancy. Over the past 10 years, I have been fortunate to be able to travel across the country—from Victoria, B.C. to St. John’s, Nfld.—educating advisors and investors on the merits of ETFs. Today, the Canadian ETF industry has grown to over $147Bn1(CAD) in assets and ETFs have become a regular part of everyday conversations. It has been very gratifying to see this exponential growth first-hand, as more and more advisors and investors embrace ETFs as both core and complementary parts of their portfolios. We have definitely come a long way, and I am excited to say that the ETF growth story continues to build momentum in Canada, the U.S., and around the world.

I have also seen our industry evolve as regulatory changes (such as CRM2) have inspired more advisors to assess how they have been running their businesses. Each and every day, I spend time speaking with advisors to gain a better understanding of their clients, and to suggest strategies to build diversified, cost-efficient portfolios with ETFs, mutual funds, and other securities.

Through this blog, I would like to achieve two things. First, I want to help advisors and investors build their knowledge of ETFs and their understanding of ETF trading. Secondly, I would also like to provide important updates on our Franklin LibertyShares® offerings and how they can be used in Canadian investors’ portfolios.

For my inaugural post, I am proud to announce the launch of three new Franklin LibertyShares ETFs that began trading on January 29th, 2018, two Smart Beta ETFs and one actively managed ETF. Our global suite of ETFs include actively managed, smart beta and passive funds that span multiple asset classes and regions. In aggregate, we’ve already crossed the $1Bn (USD) mark.

Ringing the opening bell on January 29th, 2018 at the Toronto Stock Exchange (TSX) with employees, partners and clients.

After months and months of ongoing diligence, collaboration and hard work, we are very proud to be able to celebrate the listing of our new ETFs on the TSX with members of the launch team and a select group of clients and members of the broader ETF industry.

Here is a quick overview of our new ETFs: FLGD, FLEM and FLBA:

FLGD—Franklin LibertyQT Global Dividend Index ETF (Management Fee: 0.45%)
Over the past 5 years, I have had many conversations with advisors across the country who have been looking to diversify their dividend strategy on more of a global level. Getting access to other strong companies outside out of North America has been an important way to showcase that globalization is the “new normal”.

As “dividend growers” have historically outperformed “dividend payers”, Franklin LibertyShares has developed a new Smart Beta strategy that will provide advisors and investors with access to the top 100 global stocks (in both Developed and Emerging Markets). Our methodology is based on a 2-step process:

  1. Selecting stocks that have historically demonstrated an attractive, growing dividend strategy over the past 5 years.
  2. Applying a factor overlay by filtering for Quality Factor. This enables us to narrow in on financially healthy companies that provides investors with the potential for both volatility reduction and stability of income.

FLEM—Franklin LibertyQT Emerging Markets Index ETF (Management Fee: 0.55%)
Emerging markets (EM) are back, and over the past 12-18 months advisors have started to reallocate positions of EM into their portfolios. FLEM takes a Smart Beta approach through our proprietary, multi-factor, rules-based strategy that seek to achieve better risk-adjusted outcomes compared to traditional market-cap weighted indices.

Our multi-factor strategy seeks to provide smoother performance by taking advantage of four distinct factors — Quality, Value, Momentum, and Low Volatility. These factors represent important underlying drivers of equity returns. Research and historical data indicate that quality and value are the most important contributors to stock performance, while momentum and low volatility offer technical signals that contribute to diversification. On a historical, backtested basis, FLEM’s custom benchmark has provided a lower beta (0.85), higher yield2 (2.80% vs. 1.96%), and higher Sharpe Ratio3 (0.88% vs. 0.58%) than the MSCI Emerging Market Index since inception.

FLEM’s factor weights are broken down as: 50% Quality, 30% Value, 10% Momentum, 10% Low Volatility.

FLBA—Franklin Liberty Core Balanced ETF (Management Fee: 0.45%)
Last but not least is FLBA, which is an active strategy run by our Calgary-based Franklin Bissett
team. FLBA is designed to be used as a one-ticket, core holding that provides direct access to both North American equity and fixed income securities. It has always been a challenge for advisors to allocate to other sectors due to the Canadian market’s heavy bias to Financials, Energy, and Materials. FLBA’s strategy provides access to sectors that are not as well represented in Canada such as Health Care, Industrials and Information Technology.

The fund’s investment approach combines historical and projected financial and stock market data to identify factors measuring growth, value, low volatility and momentum for both Canadian and U.S. stock picks. For the fixed income component, the portfolio will have 40 concentrated Canadian fixed income holdings benchmarked against the FTSE TMX Canadian Bond Universe Index, providing investors with a core, balanced, active strategy to hold in their portfolios.

Please let us know if you have any questions on our Franklin LibertyShares ETFs or if you have anything you would like me to cover in future blog posts. I look forward to sharing more information with you—online and in-person—in the months and years to come!

  1. Morningstar, December 2017

  2. In general terms, yield is the annual income paid by a security expressed as a percentage of its market price. With bonds, yield is the rate of interest, calculated by dividing the coupon by the bond's market price. Bonds are typically issued with fixed coupon payments (regular cash payments of a set amount), and their yield is expressed as the dollar amount received from coupon payments relative to the bond's current market price.

  3. The Sharpe ratio is the average return earned in excess of the risk-free rate per unit of volatility or total risk.