Franklin Templeton to launch two actively managed fixed income ETFs

Jun 20th, 2018 | By | Category: Fixed Income

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Franklin Templeton Investments is set to launch two actively managed fixed income ETFs in Europe.

The funds, which will initially list on the Deutsche Börse and London Stock Exchange, are the Franklin Liberty Euro Short Maturity UCITS ETF and the Franklin Liberty USD Investment Grade Corporate Bond UCITS ETF.

They expand the asset manager’s European-domiciled ‘Franklin LibertyShares’ UCITS ETF range, which until now had been equity focused, and further enhance the firm’s offering aimed at income-seeking investors.

Short maturity

The Franklin Liberty Euro Short Maturity UCITS ETF aims to provide income while maximising total returns by investing in the euro-denominated short-term fixed income market. 

The fund will invest primarily in investment grade securities but may invest up to 20% of its total portfolio in high yield corporate bonds. Additionally, securitized bonds will be limited to 30% of the total weight. The fund will target a portfolio duration below two years while bonds with negative duration will be eligible for inclusion. Portfolio duration will be permitted to range from -2 to 2, giving the fund managers’ flexibility to exploit opportunities along the yield curve.

The fund will be available to trade in euros (FLES LNFVSH GY) and sterling (FRXE LN), and is likely to offer a credible alternative to Invesco‘s €2.8 billion actively managed PIMCO Euro Short Maturity Source UCITS ETF (PJS1 GY).

It will be managed by London-based David Zahn, head of European fixed income, and Rod MacPhee.

“As active managers, we have the flexibility to pursue investment opportunities that are beyond the fund’s benchmark index to help identify the most attractive securities to invest in.”
– David Zahn, head of European fixed income, Franklin Templeton Investments.

Zahn said, “I am excited to be launching the Franklin Liberty Euro Short Maturity UCITS ETF, an actively managed short-term European fixed income ETF that offers exposure to high quality European short maturity bonds with a yield and return advantage over cash equivalent investments. As active managers, we have the flexibility to pursue investment opportunities that are beyond the fund’s benchmark index to help identify the most attractive securities to invest in.”

Investment grade credit

The Franklin Liberty USD Investment Grade Corporate Bond UCITS ETF aims to provide income while preserving capital through investing in US dollar-denominated corporate debt securities issued by US and foreign companies.

Assets will be allocated among a range of market sectors with at least 80% being invested in fixed and floating rate investment grade corporate debt securities and investments.

The fund will be managed by New York-based Marc Kremer and San Mateo-based Shawn Lyons, and will be available to trade in US dollars (FLUC LN), sterling (FRUC LN) and euros (FVUI GY).

Commenting on the pending launches, Caroline Baron, Head of ETF Sales EMEA at Franklin Templeton, said: “In a persistently low-yield environment and with several inefficiencies present in the bond market, investors are faced with seeking new ways to generate income and diversify their portfolios. Traditional debt-issuance weighted ETFs continue to grow in popularity but often face the challenge of being biased towards the biggest debtors or potentially suffering from the effects of ‘crowded trades’ as constituents of an index change.

“As a result, many investors are turning to actively managed fixed income ETFs with the ultimate objective of achieving true diversification.”

The funds are scheduled to list next week.

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