Smart Beta ETFs Could Comfort Investors During Heavy Volatility

Market whipsaws are making a comeback in a big way due to the heavy volatility raining down on the capital markets. However, strategic plays such as those found in smart beta exchange-traded funds (ETFs) could provide comfort for investors.

Just when the capital markets were responding positively to the 25-basis point rate cut by the Federal Reserve, U.S. President Donald Trump’s imposition of tariffs sent the markets back down. Trump’s announcement that a 10 percent tariff would be applied to another $300 billion worth of Chinese goods, effective Sept. 1, sent the major indexes on a rollercoaster last week.

If that wasn’t enough, China responded with their own tariffs, causing the Dow Jones Industrial Average to experience losses of over 950 points on Monday before settling for a 767-point decline.

As such, it’s necessary for investors to have exposure to smart beta ETFs that have the ability to incorporate strategies that can capture gains on a market upswing and mute volatility by limiting losses during a downturn.

With the potential for volatility ahead, what ETPs are available in the marketplace that can address the concern for volatility risk while at the same time, realize any upward gains realized when markets rise? And what product can provide investors with the international exposure necessary for diversification?

If cost is an issue, Franklin Templeton recently announced fee reductions for three Franklin LibertyShares ETFs available to US investors.

“We are constantly evaluating ways to improve client experiences. I’m excited to announce our latest effort – lower pricing on our large cap equity and emerging market smart beta ETFs as well as our international bond active ETF,” said Patrick O’Connor, global head of ETFs for Franklin Templeton.

As detailed in the chart below, management fee reductions will be made to Franklin LibertyQ U.S. Equity ETF (BATS: FLQL) and Franklin LibertyQ Emerging Markets ETF (NYSEArca: FLQE). In addition, the fee waiver for Franklin Liberty International Aggregate Bond ETF (BATS: FLIA) will be reduced. All reductions are effective August 1, 2019.

FLQL seeks to provide investment results that closely correspond to the performance of the LibertyQ U.S. Large Cap Equity Index. The U.S. Large Cap underlying index is based on the Russell 1000® Index using a methodology developed with Franklin Templeton to reflect Franklin Templeton’s desired investment strategy.

FLQE seeks to provide investment results that closely correspond to the performance of the LibertyQ Emerging Markets Index. The index seeks to achieve a lower level of risk and higher risk-adjusted performance than the MSCI Emerging Markets Index over the long term by applying a multi-factor selection process.

FLIA seeks total investment returns consisting of a combination of interest income and capital appreciation. The fund invests predominantly in fixed and floating-rate bonds issued by governments, government agencies and governmental-related or corporate issuers located outside the U.S. It is non-diversified.

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