Franklin Templeton could be expanding its exchange traded fund lineup with smart-beta index offerings instead of adding more actively managed ETFs.
According to Franklin chief executive Gregory Johnson, the money manager will pause its active ETF expansion to observer how Eaton Vance’s non-transparent NextShares exchange traded managed funds will do, reports Jackie Noblett for Ignites.
The NextShares ETMFs are seen as a competing investment vehicle to the active ETF space, which many managers have shown an interest in due to the ETMFs non-transparent structure. In contrast, many have been loath to reveal their secret sauce through a fully transparent active ETF structure. Franklin, though, has not licensed Eaton vance’s Navigate Fund Solutions subsidiary for an ETMF launch. [SEC Again Rejects Precidian Non-Transparent ETFs, Solidifying Eaton Vance Lead]
Additionally, some have argued that the NextShares ETMFs are not an attractive option from a distribution standpoint. Eaton Vance has been trying to court more brokerages to make trading ETMFs more widespread. [Eaton Vance Partnering with Brokerages to Bring ETMFs to the Masses]
Consequently, Franklin is taking a greater interest in the smart-beta indexing strategy as a way to utilize its active fund expertise and to sell to some high-net-worth clients who would enjoy the lower-cost beta option.
“We don’t think cloning open-end funds in this structure makes a lot of sense for us right now,” Johnson said. “We’re not ruling it out one way or another, but we just don’t think there’s demand.”