Joining a key trend in the ETF space, Franklin Templeton announced Monday that it launched two converted ETFs, growing its actively-managed US large-cap value and international growth lineups.
The two strategies, the BrandywineGLOBAL–Dynamic US Large Cap Value ETF (DVAL) and the Martin Currie Sustainable International Equity ETF (MCSE), are the firm’s first mutual funds to convert to ETFs and are worth consideration as markets continue a mini-rally awaiting the next Fed rate hike and greater earnings clarity regarding a possible 2023 recession.
“Franklin Templeton is one of the largest active managers with a well-established mutual fund presence and a growing ETF one,” said VettaFi head of research Todd Rosenbluth. “I view these conversions to ETFs as indicative of the firm’s commitment to being a future leader as active ETFs gain greater advisor attention.”
The converted ETFs will be managed in a substantially similar approach to how they operated as mutual funds and retain their primary subadvisor, portfolio management team, and investment objective. The strategies come via two of Franklin Templeton’s many affiliates, Brandywine Global Investment Management, LLC and Martin Currie, Inc.
DVAL invests at least 80% of its assets in U.S. large-cap equities that offer a value opportunity based on factors including P/E and P/B ratios, charging a 65 basis point fee for its active approach. DVAL identifies stocks with upside potential and relatively low downside risk relative to the Russell 1000 Value Index. The top two sectors as represented within the predecessor mutual fund were the financials and healthcare sectors, which may change over time.
MCSE invests in foreign firms with a strong history of high and sustainable returns, charging 75 basis points for its active approach. MCSE also applies an ESG screen via a proprietary framework that may include but is not limited to factors such as shareholder rights, pollution, and climate change policies before applying a one through five. Those rated four or five, the bottom two ratings, will not be included by the ETF.
MSCE also avoids firms with serious revenues from weapons, tobacco, and fossil fuel extraction, with the strategy expected to be highly concentrated in 20-40 firms with no sector, geography, or market cap limits.
“In converting these mutual funds to ETFs, we are responding to growing client demand for these products while also broadening our lineup to include additional strategic offerings in the actively managed US large-cap value and international growth spaces,” Franklin Templeton’s Head of Global ETFs Patrick O’Connor said. “We now offer 58 ETFs in the U.S. with a combined AUM of approximately $9 billion.”
“Leveraging the deep expertise and focus of our independent specialist investment managers, these two funds have historically delivered exceptional results and diversification potential for clients,” O’Connor added.
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