Franklin Templeton expands multi-factor equity suite with European ETF

Sep 13th, 2018 | By | Category: Equities

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Franklin Templeton Investments has added the Franklin LibertyQ European Equity UCITS ETF to its line-up of European listed ETFs. The new ETF provides equity exposure to developed market European companies selected and weighted using a multi-factor smart beta approach.

Caroline Baron Franklin Templeton ETFs

Caroline Baron, Head of ETF Sales EMEA at Franklin Templeton Investments.

The fund is linked to the LibertyQ Europe Equity Index, a proprietary index developed in-house.

The investment process screens the parent MSCI Europe Index universe across four investment style factors: quality, value, momentum and low volatility.

All stocks in the parent index – which includes large and mid-cap representation across 15 developed market countries in Europe – are given a composite score based on their exposure to the four factors. When determining the composite score, a 50% weight is assigned to quality, 30% to value and 10% each to momentum and low volatility.

The 25% of stocks with the highest composite factor scores are selected to become index constituents and are weighted based on a combination of market capitalisation and composite factor score. The index currently has 115 constituents.

Commenting on the launch, Caroline Baron, Head of ETF Sales EMEA at Franklin Templeton Investments, said: “Following the European launch of our five smart beta ETFs last year and two active fixed income ETFs in June this year, we continue to build momentum and develop our suite of LibertyQ funds for the European market.”

She added: “For our line-up of multi-factor strategies, we target high quality companies that are attractively valued using momentum to identify investment trends and avoid value traps. We also use low volatility to help provide a defensive measure against downturns.”

The fund has been launched on Deutsche Börse’s Xetra in euros (FVUE GY) and is set to be listed on the London Stock Exchange in pound sterling (FREQ LN) and euros (FLEQ LN), and also on Borsa Italiana (FLEQ IM) and SIX Swiss Exchange in euros (FLEQ SE).

The fund joins a modest but growing list of ETFs offering multi-factor exposure to European stocks. That said, the Franklin Templeton ETF has a very reasonable total expense ratio (TER) of 0.25% and is thus very competitive on price and materially less expensive than potential alternatives.

These include the €400 AUM iShares Edge MSCI Europe Multifactor UCITS ETF (IFSE LN), which comes with a TER of 0.45%; the swap-based Amundi Europe Equity Multi Smart Allocation Scientific Beta UCITS ETF (SMRE FP), which has €330m in AUM and a TER of 0.40%; and the €85m Lyxor JP Morgan Multi-Factor Europe Index UCITS ETF (LYX5), also at 0.40%.

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