On this episode of the “ETF of the Week” podcast, VettaFi’s Head of Research Todd Rosenbluth discussed the Franklin FTSE United Kingdom ETF (FLGB) with Chuck Jaffe of “Money Life.” The pair talked about several topics regarding the fund to give investors a deeper understanding of the ETF overall.
Chuck Jaffe: One fund … on point for today … the expert to talk about it. Welcome to the ETF of the Week, where we examine trending, new, newsworthy, unique, and intriguing exchange traded funds with Todd Rosenbluth, the head of research at VettaFi. And at VettaFi.com, you will find all the tools and research you need to be a savvy and smart investor in ETFs. Todd Rosenbluth, it’s great to chat with you again.
Todd Rosenbluth: It’s great to be back again with you, Chuck.
Chuck Jaffe: Your ETF of the Week is …
Todd Rosenbluth: The Franklin FTSE United Kingdom ETF, FLGB.
Chuck Jaffe: FLGB, the Franklin FTSE United Kingdom ETF. So, this is an interesting pick. I mean, there’s a lot of investors who I talk with who are not anxious to be jumping across the pond. You are not only going across the pond here, but you are single-country-specific, which at least in the old days before ETFs, a single-country sector fund was a way to goose or kill a portfolio, because they were so volatile. So, why this fund now?
Todd Rosenbluth: So, first of all, we’ve just celebrated in the United States July 4, our independence from Britain and the United Kingdom. But also what happened on July 4 was, in the United Kingdom, they held an election. And it went so well in favor of the Labour Party that there’s likely to be stability in the government, relative to where we’re seeing other parts of Europe.
So, we think investors are increasingly looking to add international exposure, given how strong a run we’ve seen for U.S. stocks in the first half. They probably have exposure to the United Kingdom, but maybe not as much as they might like. And this is a relatively cheap, relatively targeted way to overweight exposure to the United Kingdom, in a broadly diversified portfolio.
Chuck Jaffe: That said, this is a single-country fund. Single-country funds … inherently dangerous. So, how do you use this as a tool in your portfolio? And why a single-country fund instead of — or is it in addition to — a more diversified European fund?
Todd Rosenbluth: We expect that most investors that have some diversification globally are going to have developed international exposure. And the Vanguard FTSE Developed Markets ETF (VEA) is one of those larger portfolios, larger ETFs, to get exposure outside the United States to the equity market. The United Kingdom is roughly 12% or 13% of that ETF. We think this ETF from Franklin, FLGB, can be a great complement to overweight exposure to the United Kingdom market.
We’re seeing some improving fundamentals. The earnings picture is likely to be better in the second half of the year. From a political standpoint, it’s likely to be stronger. And all of this happened where in the first half, the United Kingdom was a relatively strong developed international market, so we think we’re going to see more attention on the U.K.. This is a great, low-cost way of getting exposure.
Chuck Jaffe: That said — and I know you are not a trend follower necessarily — but I become conditioned to look at what’s the trend on an ETF. And this one’s in an interesting spot, because it’s above its 200 day-moving average. But it’s below its 50-day moving average. And that is typically a sign that, well it’s trending in the wrong direction.
In other words, the long-term trend has been positive, but the shorter term-trend is negative. Any concerns about timing or this, or again, the timing is good because of the political stuff?
Todd Rosenbluth: So I think it’s probably seeing how that moves in the weeks ahead. They just had an election in the United Kingdom a week ago. And we think the trend is going to probably be better. We think the fundamentals are stronger as we kick off earnings season globally in the coming weeks, where we think we’re going to see relative strength out of some of the companies that are top-heavy within the U.K. market.
And so again, I know it’s something to focus on. I know listeners are likely accustomed to thinking about it. It’s a tool within your toolbox. But I also like what’s happening from a fundamental perspective. We are likely to see stronger trends within the healthcare financials, energy sectors, that this ETF is overexposed to, relative to what we have in the United States.
Chuck Jaffe: Relative to what we have in the United States — I want to hold that thought for a second. Because I talk to a lot of guests, where we’re talking domestic markets, and we’re also talking domestic politics. And one of the messages that comes across loud and clear is that most investment experts don’t really think that whoever wins the election is necessarily going to have a massive impact on the market, that you’re stuck with the economy you’re stuck with. And you can do things, but you’re not going to suddenly make a losing situation a winning one, or vice versa.
Yet here you are, saying that the election in Great Britain plays a big role in this fund. Is there a difference for you about elections internationally than domestically, because you’re not dealing with as big an economy? And Is there more to it? Is there something we’re missing? Because I haven’t had anybody say, hey, I can’t wait till we resolve the election, know where it’s going, and then I’ll go buy large-cap U.S. stocks, or whatever it is.
Todd Rosenbluth: There’s typically some volatility heading into an election. I’m going to put aside for today the U.S. election, and who’s leading, who’s trending where where things are going. In the United Kingdom, we had one party in power for a couple of decades. That is now finally shifting. So that shift we think could be, hopefully helpful, as we move forward into the second half of the year. And relative to what we’re seeing in France, where it doesn’t seem like we’re going to have a clear leader in the in the government from Parliament, the United Kingdom is an area of strength for folks who want to look from the United States, overseas, internationally.
But of course, any ETF is going to be driven by the underlying holdings. This ETF holds Shell, and AstraZeneca, and HSBC, and Unilever, among the larger holdings. Those are global companies that happen to be based in the United Kingdom. And as the global economy hopefully is strong in the second half of the year, these companies are going to benefit. So the election plays a role. It’s a key milestone. It’s why I thought of this ETF. I think some investors are going to look more closely at U.K. because of the shift in power.
Chuck Jaffe: And because it is a single-country fund, because they are historically volatile, and the rest, how much of a portfolio are you willing to let a fund like this be?
Todd Rosenbluth: As I mentioned earlier, you get roughly, 12%-13% exposure to the United Kingdom in a developed international portfolio that many folks have maybe 20% of their overall equity exposure. So we could see overusing this ETF to be targeted and overweight the United Kingdom. I’m going to let people figure out their risk tolerance. But again, I agree with you. There is volatility in investing in just one country outside of the United States.
We think that this makes sense as a complement to a broadly diversified portfolio. And I keep talking about it being cheap. So let me state what it is. It’s 9 basis points. That is considerably cheaper than some of the other larger single-country ETFs that are available.
Franklin Templeton is using its scale as an asset manager as an advantage, making this accessibility quite cheap for investors. So several hundred companies, you’d have within the 100-plus companies in a portfolio for just a benefit of 9 basis points.
Chuck Jaffe: It’s a tasty crumpet to add to your portfolio. It is the FLGB. The Franklin FTSE United Kingdom ETF. The ETF of the Week from Todd Rosenbluth at VettaFi. Todd, great stuff. We’ll talk to you again next week.
Todd Rosenbluth: I’ll see you soon, Chuck.
Chuck Jaffe: The ETF of the Week is a joint production of VettaFi and Money Life with Chuck Jaffe. And yes, that’s me. And you can learn all about my hour-long, weekday podcast by going to MoneyLifeShow.com, or by searching wherever you find your favorites. If you’re searching for great information on exchange traded funds that you want to be your favorites, look no further than VettaFi.com, where they have all the tools you need to be a better investor. They’re on Twitter or X at @Vetta_Fi.
Todd Rosenbluth, their head of research, my guest, he’s there too. He’s at @ToddRosenbluth. The ETF of the Week is here for you every Thursday. Make sure you don’t miss one by subscribing and following along on your favorite podcast app. We’ll introduce you to another great ETF next week. And until then, happy investing!
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