Franklin Templeton boosts ETF capabilities with Legg Mason acquisition

Feb 18th, 2020 | By | Category: ETF and Index News

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Franklin Resources, the parent group of Franklin Templeton, has agreed to acquire investment manager Legg Mason for $4.5 billion cash.

Jenny Johnson, President and CEO of Franklin Templeton.

Jenny Johnson, President and CEO of Franklin Templeton.

The acquisition, which also sees Franklin assimilate Legg Mason’s affiliates, is expected to create a $1.5 trillion asset management company.

The combined company will manage about $7.5bn in ETF assets, across some 65 products.

Franklin Templeton’s global ETF business, Franklin LibertyShares, currently offers ETFs in the US, Canada, and Europe. The platform consists of 55 ETFs with approximately $6bn in assets under management across actively managed, smart beta, and passive products.

The firm’s active ETFs are primarily focused on the fixed income market, its smart beta ETFs on multi-factor equity exposures, and its passive suite on single-country and regional exposures.

While Legg Mason and its multiple investment affiliates collectively manage over $800bn in assets, its ETF business houses a more modest $1.5bn across ten equity and fixed income funds listed in the US.

The largest in the line-up is the $900 million Legg Mason Low Volatility High Dividend ETF (LVHD US). The fund, which comes with an expense ratio of 0.27%, is linked to the QS Low Volatility High Dividend Index. The index includes stocks from across the US market cap spectrum that have relatively high dividend yields and relatively low price and earnings volatility. Constituents are weighted so as to boost exposure to ‘sustainable yield scores’.

Legg Mason offers international developed and emerging market ETFs for the same low-vol high-div strategy, although these funds are significantly smaller with $70m and $5m AUM respectively.

These yield-focused ETFs will help to expand Franklin Templeton’s smart beta repertoire as the firm’s existing multi-factor funds target returns attributable to quality, value, momentum, and low volatility factors. These funds are linked to proprietary indices based on the global, US, European, Asia ex-Japan, and emerging markets equity universes. The largest is the Franklin LibertyQ US Equity ETF (FLQL US) with over $1.5bn.

The majority of Legg Mason’s remaining ETF-linked AUM is housed within two global equity ETFs that are actively managed by its affiliate ClearBridge Investments. The $220m ClearBridge Large Cap Growth ESG ETF (LRGE US) and the $160m ClearBridge All Cap Growth ETF (CACG US) seek opportunities in global growth stocks while the former also incorporates environmental, social, and governance (ESG) screening criteria.

Company comments

Greg Johnson, Executive Chairman of the Board of Franklin Resources, commented, “This is a landmark acquisition for our organization that unlocks substantial value and growth opportunities driven by greater scale, diversity, and balance across investment strategies, distribution channels and geographies.”

Jenny Johnson, President and CEO of Franklin Templeton, added, “This acquisition will add differentiated capabilities to our existing investment strategies with modest overlap across multiple world-class affiliates, investment teams, and distribution channels, bringing notable added leadership and strength in core fixed income, active equities, and alternatives. We will also expand our multi-asset solutions, a key growth area for the firm amid increasing client demand for comprehensive, outcome-oriented investment solutions.”

Joseph A. Sullivan, Chairman and CEO of Legg Mason, said, “The incredibly strong fit between our two organizations gives me the utmost confidence that this transaction will create meaningful long-term benefits for our clients and provide our shareholders with a compelling valuation for their investment. By preserving the autonomy of each investment organization, the combination of Legg Mason and Franklin Templeton will quickly leverage our collective strengths, while minimizing the risk of disruption. Our clients will benefit from a shared vision, strong client-focused cultures, distinct investment capabilities and a broad distribution footprint in this powerful combination.”

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