Franklin Templeton launches actively managed ‘core’ bond ETF

Sep 20th, 2019 | By | Category: Fixed Income

Franklin Templeton has launched a new actively managed ETF in the US aimed at investors seeking diversified core fixed income exposure via a single trade.

Patrick O’Connor, global head of ETFs at Franklin Templeton Investments.

Patrick O’Connor, Global Head of ETFs at Franklin Templeton Investments.

The Franklin Liberty US Core Bond ETF (FLCB US) has listed on NYSE Arca and comes seeded with $100 million.

“We believe active management is critical for achieving long-term returns and managing investment risk, particularly in multi-sector investment grade fixed income,” said Patrick O’Connor, Global Head of ETFs for Franklin Templeton. “We are thrilled to launch FLCB, which can serve as a core, building block allocation in an investor’s portfolio.”

The fund will invest in investment-grade securities from US issuers which Franklin defines as those entities which are listed in the US, generate at least half their revenue from US operations, or have more than half their assets in the US.

It will aim to maintain a tracking error between 50-100 basis points relative to the Bloomberg Barclays US Aggregate Bond Index, a broad-based flagship benchmark that measures the investment-grade, US dollar-denominated, fixed-rate taxable bond market. This index includes Treasuries, government-related and corporate securities, mortgage-backed securities (agency fixed-rate and hybrid pass-throughs), asset-backed securities, and commercial MBS (agency and non-agency).

The ETF seeks to generate alpha by harnessing insights from Franklin Templeton’s fixed income and quantitative research divisions. The portfolio managers utilize bottom-up fundamental bond selection and top-down sector allocation to provide a holistic viewpoint on each potential investment.

“The investment team has chosen to manage this fund with a low tracking error to the Bloomberg Barclays US Aggregate Bond Index but has the flexibility to derive alpha through active sector allocation and security selection, providing a truly active core fixed income ETF,” added O’Connor.

The ETF comes with an expense ratio of 0.15% due to a contractual fee waiver in place until at least July 2021. Its gross expense ratio is 0.19%.

While the expense ratio is cheap for an active fund, investors can gain passive exposure to the Bloomberg Barclays US Aggregate Bond Index for as low as just 0.04% through the $4.8bn SPDR Portfolio Aggregate Bond ETF (SPAB US).

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