As investors look for alternative ways to diversify away from the Bloomberg Barclays US Aggregate Bond Index, many are considering bond ETFs for municipal debt exposure.
“We think munis play a very important role in a client’s portfolio both as a diversifier and for tax-free income,” David Mann, Senior Vice President and Head of Capital Markets at Franklin Templeton, said at the recent Morningstar ETF Conference.
Franklin Templeton recently launched the actively managed Franklin Liberty Intermediate Municipal Opportunities ETF (NYSEArca: FLMI) and the Franklin Liberty Municipal Bond ETF (NYSEArca: FLMB) to help ETF investors better access the municipal debt markets.
The Intermediate Municipal Opportunities ETF invests in municipal securities with a maturity of three to 10 years and may include debt of any rating, including those below investment grade and defaulted securities. The fund won’t focus on any single state and will not invest more than 15% of assets of a single state.
The Municipal Bond ETF is not much different from FLMI, but it invests in muni securities with a longer maturity of five to 15 years and only holds securities rated in one of the top four ratings categories.
“Franklin Templeton has been doing munis for over 40 years – you know seventy billion dollars of assets, so it’s a real strength of the firm, lots of desire to have it in the ETF wrapper, leverages a lot of that active expertise,” Mann said.
Franklin Templeton’s James Conn and Chris Sperry will both be on the management team for both ETFs while Daniel Workman will also work on FLMI and Nicholas Bucklin will also work on FLMB.
“We think for active where there’s, you know, almost a million municipal bonds, a lot of indices are very restrained in terms of what they can own,” Mann said. “We’re not going to go through those same type of restrictions.”
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