Smart Beta ETFs

Learn More About Smart Beta and LibertyQT 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.