Go Global with our new lineup of ETFs

Ahmed Farooq, CIMA®, CFP

Ahmed Farooq, CIMA®, CFP
Vice President - ETF Business Development at Franklin Templeton Canada

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On January 29, 2018, after months of ongoing diligence, collaboration and hard work, the ETF team at Franklin Templeton Investments were very proud to celebrate the listing of 3 new Franklin LibertyShares ETFs on the TSX! These recent additions to our growing suite of ETF products reflect our ongoing commitment to bringing even more flexibility and choice to both advisors and investors. 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 $1.7Bn (CAD) mark.

As these ETFs are still new, I would like to provide a brief overview of the unique characteristics of each ETF and some background on why they were developed, and how they seek to address certain investment gaps in the market.

Introducing 3 New Franklin LibertyShares ETFs

FLGD (Franklin LibertyQT Global Dividend Index ETF) | Management Fee: 0.45%

Over the past 5 years, I have had many conversations with advisors who say that their clients are looking to diversify their dividend strategy. FLGD provides investors with the opportunity to “go global” by adding exposure to strong companies outside out of North America. As a Smart Beta ETF, FLGD selects companies that demonstrate consistent dividend growth, as they tend to perform better than dividend payers. Adhering to this “dividend payer” focus, FLGD provides access to the top 100 global stocks in both Developed and Emerging Markets.

FLGD’s stock selection methodology is based on a 2-step process:

STEP 1. Selecting stocks that have historically demonstrated attractive, growing dividends over the past 5 years.

STEP 2. Applying a factor overlay by filtering for the Quality Factor. Filtering for Quality enables FLGD to further narrow in on financially healthy companies that provides investors with the potential for both reduced volatility and stability of income.

FLEM (Franklin LibertyQT Emerging Markets Index ETF) | Management Fee: 0.55%

It’s no secret that Emerging Markets (EM) have made a big comeback over the past 12-18 months. Many of the advisors I interact with have started to reallocate emerging market positions back into their portfolios. As an EM fund, FLEM is built on our proprietary, multi-factor, rules-based Smart Beta strategy that seeks to achieve better risk-adjusted outcomes compared to traditional market-cap weighted indices. The goal here is to try to provide smoother performance by incorporating 4 distinct factors that we believe are key drivers of equity returns: Quality, Value, Momentum, and Low Volatility.

For this fund the factor weights are broken down as: 50% Quality, 30% Value, 10% Momentum, 10% Low Volatility. Research and historical data demonstrate that Quality and Value are the most important contributors to stock performance. Momentum allows to help identify investment trends and lastly,  Low Volatility helps to provide defense against market downturn. On a historical back-tested basis, since inception FLEM’s custom benchmark relative to the MSCI Emerging Markets Index has provided the following results:

  • A lower beta of 0.85
  • A higher yield of 2.80% vs. 1.96% for the Index
  • A higher Sharpe Ratio of 0.88% vs. 0.58% for the Index

FLBA (Franklin Liberty Core Balanced ETF) | Management Fee: 0.45%

Last but not least is FLBA, an actively managed ETF run by Franklin Bissett Investment Management in Calgary, Alberta. FLBA is designed as a one-ticket, core holding that provides direct access to both North American equity and fixed income securities. Canadian advisors have always been challenged with allocating to a variety of sectors due to the Canadian market’s heavy bias to Financials, Energy, and Materials. FLBA’s strategy provides access to attractive sectors that have been underrepresented in Canada such as Health Care, Industrials and Information Technology.

FLBA’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 has 40 concentrated Canadian fixed income holdings that are benchmarked against the FTSE TMX Canadian Bond Universe Index, providing investors with a core, balanced, active strategy to hold in their portfolios.

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What Are the Risks?

Commissions, management fees and expenses may all be associated with investments in ETFs. Investors should carefully consider an ETF’s investment objectives and strategies, risks, fees and expenses before investing. The prospectus and ETF facts contain this and other information. Please read the prospectus and ETF facts carefully before investing. ETFs trade like stocks, fluctuate in market value and may trade at prices above or below the ETF’s net asset value. Brokerage commissions and ETF expenses will reduce returns. Performance of an ETF may vary significantly from the performance of an index, as a result of transaction costs, expenses and other factors. The indicated rates of return are the historical annual compounded total returns including changes in share or unit value and reinvestment of all dividends or distributions and do not take into account sales, redemption, distribution or optional charges or income taxes payable by any security holder that would have reduced returns. ETFs are not guaranteed, their values change frequently and past performance may not be repeated.

Ahmed Farooq’s comments, opinions and analyses are for informational purposes only and should not be considered individual investment advice or recommendations to invest in any security or to adopt any investment strategy. Because market and economic conditions are subject to rapid change, comments, opinions and analyses are rendered as of the date of the posting and may change without notice. The material is not intended as a complete analysis of every material fact regarding any country, region, market, industry, investment or strategy.

All investments involve risks, including the possible loss of principal. Investments in foreign securities involve special risks including currency fluctuations, economic instability and political developments. Investments in emerging markets, of which frontier markets are a subset, involve heightened risks related to the same factors, in addition to those associated with these markets’ smaller size, lesser liquidity and lack of established legal, political, business and social frameworks to support securities markets. Because these frameworks are typically even less developed in frontier markets, as well as various factors including the increased potential for extreme price volatility, illiquidity, trade barriers and exchange controls, the risks associated with emerging markets are magnified in frontier markets. Stock prices fluctuate, sometimes rapidly and dramatically, due to factors affecting individual companies, particular industries or sectors, or general market conditions.