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Smart Beta ETFs
What are Smart Beta ETFs?
Smart Beta ETFs are one of the fastest growing investment options available to investors. While the concept may seem complicated, watch this video for a simple explanation of what Smart Beta ETFs are, how they work and what they are designed to achieve.
Smart Beta refers to a methodology of index construction that seeks to achieve better risk-adjusted returns compared to traditional market capitalization weighted benchmark indexes. There is no guarantee that any strategy will achieve its objective. Franklin LibertyQT ETFs are not riskless investments, and investors can lose money. For additional risk disclosures, please see the prospectus.
Smart Beta...
- …is an index that has been designed to achieve a specific outcome.
- …is an evolved way of creating an index, using rules to target companies that demonstrate specific “factors”, or drivers of performance, in order to achieve a specific objective.
- …targets a variety of factors, combining them in a strategic way, which may lead to stronger returns with less risk over time.
Understanding the LibertyQ Factor Methodology
Chandra Seethamraju, Ph.D., Vice President, Director of Systematic Modeling, Franklin Templeton Solutions, discusses the methodology behind Franklin’s multi-factor Smart Beta ETFs, including the rationale behind LibertyQ’s custom factor definitions and their factor weightings.
Smart Beta refers to a methodology of index construction that seeks to achieve better risk-adjusted returns compared to traditional market capitalization weighted benchmark indexes. There is no guarantee that any strategy will achieve its objective. Franklin LibertyQT ETFs are not riskless investments, and investors can lose money. For additional risk disclousures, please see the prospectus.
LibertyQ’s custom factor definitions
While many Smart Beta strategies utilize the same four factors, many employ standard, widely accepted approaches to measuring these factor exposures. We sought to develop custom factor measures which we believe could provide a more comprehensive evaluation of a stock's exposure to each factor.
What factors do LibertyQT Smart Beta ETFs utilize?
Our research led us to utilize four well known factors in our Smart Beta ETFs: quality, value, momentum, and low volatility.
How is the LibertyQ methodology different from other Smart Beta ETFs?
LibertyQ's methodology is differentiated on two dimensions–how we define factors and how we combine or weight factors.
What are LibertyQ’s custom factor weightings?
Our LibertyQ multi-factor weighting is tilted with a 50% weighting to quality, 30% to value, 10% to momentum and 10% weighting to low volatility. Based on our research, we emphasized the quality and value factors largely because both factors philosophically represent the way Franklin Templeton approaches active stock picking.
What are the LibertyQT Smart Beta ETFs designed to achieve?
The results of our Smart Beta research have lead us to believe that our robust factor definitions and custom factor weightings may help improve risk adjusted returns over the long-term.
Important Legal Information
LibertyQT risks: All investments involve risks, including possible loss of principal. Special risks are associated with foreign investing, including currency fluctuations, economic instability and political developments; investments in emerging markets involve heightened risks related to the same factors. To the extent the funds focus on particular countries, regions, industries, sectors or types of investment from time to time, they may be subject to greater risks of adverse developments in such areas of focus than funds that invest in a wider variety of countries, regions, industries, sectors or investments. Smaller, mid-sized and relatively new or unseasoned companies can be particularly sensitive to changing economic conditions, and their prospects for growth are less certain than those of larger, more established companies. Historically, these securities have experienced more price volatility than larger-company stocks, especially over the short term. Performance of the funds may vary significantly from the performance of an index, as a result of transaction costs, expenses and other factors. There can be no assurance that the Fund’s multi-factor stock selection process will enhance performance. Exposure to such investment factors may detract from performance in some market environments, perhaps for extended periods. The funds’ risk considerations are discussed in the prospectus.
ETFs trade like stocks, fluctuate in market value and may trade at prices above or below their net asset value. Brokerage expenses and ETF fees will reduce returns.
For more information on any funds, contact your financial advisor or download a prospectus. Investors should carefully consider a fund’s investment goals, risks, sales charges and expenses before investing. The prospectus contains this and other information. Please read the prospectus carefully before investing or sending money.
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