Franklin Templeton Investments has expanded its LibertyShares line-up with the launch of three new smart beta ETFs offering exposure to different capitalization segments of the US equity market.
Patrick O’Connor, global head of ETFs at Franklin Templeton Investments.
Patrick O’Connor, global head of ETFs at Franklin Templeton Investments, commented: “Our new US equity smart beta ETFs reflect our ongoing commitment to investors, by developing best-in-class offerings that seek to achieve better risk-adjusted returns over the long term. Leveraging our firm’s 70 years of active management experience, our quantitative approach targets specific factors for consistent sources of return. In our proprietary approach, we place an emphasis on the ‘quality’ factor.”
Each fund tracks a proprietary, research-driven index, targeting exposure across four factors which have historically provided superior returns to market cap-weighted benchmarks over the long-term. Franklin Templeton believes certain factors play a more significant role over others in driving long-term out-performance and has thus assigned a varied weighting across the factors of quality (50%), value (30%), momentum (10%) and low volatility (10%).
The LibertyQ index methodology assigns each security within the parent index four z-scores, each representing that firm’s relative position in one of the above factors. Z-scores are capped at maximum and minimum values of +3 and -3 respectively. The quality z-score is determined through an analysis of return on equity, earnings variability, and cash return on assets; the value z-score is determined through an analysis of price-to-book ratios and dividend yields, the momentum z-score is determined through an analysis of 6-month risk-adjusted price momentum and 12-month risk-adjusted price momentum, and the volatility z-score is determined through analysis of the variability of return over the previous 104 weeks.
The four z-scores are thereby combined according to the above weightings to arrive at a composite z-score for each firm. All constituents are ranked in descending order according to their composite scores with a selection of the highest ranked stocks included in the final composition. Constituents are weighted according to a function of their market capitalization and their final composite scores. The indices are managed by MSCI and re-balanced on a semi-annual basis.
The Franklin LibertyQ US Equity ETF (BATS: FLQL) tracks the LibertyQ US Large Cap Equity Index which is derived from its parent, the Russell 1000 Index. The fund currently has 250 holdings with significant exposure to the information technology (19.5%), consumer discretionary (18.3%), consumer staples (17.4%) and industrials (15.5%) sectors. It has a total expense ratio (TER) of 0.25% due to a contractual fee waiver in place until at least April 2018. Its gross expense ratio is 0.43%.
The Franklin LibertyQ US Mid Cap Equity ETF (BATS: FLQM) tracks the LibertyQ US Mid Cap Equity Index which is derived from its parent, the Russell Midcap Index. The fund currently has 200 holdings with significant exposure to the consumer discretionary (24.8%), industrials (17.4%), financials (13.2%), information technology (11.6%) and consumer staples (10.4%) sectors. It has a TER of 0.30% due to a contractual fee waiver in place until at least April 2018. Its gross expense ratio is 0.48%.
The Franklin LibertyQ US Small Cap Equity ETF (BATS: FLQS) tracks the LibertyQ US Small Cap Equity Index which is derived from its parent, the Russell 2000 Index. The fund currently has 484 holdings with significant exposure to the consumer discretionary (25.6%), information technology (15.8%), industrials (15.8%), healthcare (9.8%) and financials (9.6%) sectors. Its TER is 0.35% due to a contractual fee waiver in place until at least April 2018. Its gross expense ratio is 0.53%.
The smart beta suite also includes four ETFs, initially rolled out by Franklin Templeton in June 2016, covering emerging, international and global equity strategies. These funds, along with their ticker codes and respective TERs are listed below:
Franklin LibertyQ Global Equity ETF (NYSE: FLQG). TER – 0.35%.
Franklin LibertyQ Emerging Markets ETF (NYSE: FLQE). TER – 0.55%.
Franklin LibertyQ International Equity Hedged ETF (NYSE: FLQH). TER – 0.40%.
Franklin LibertyQ Global Dividend ETF (NYSE: FLQD). TER – 0.45%.