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Franklin LibertyShares is a new series of strategic beta and active ETFs designed to help investors seek better outcomes.

Our difference? The Human Factor. Because when it comes to investing, we put our stock in the most intelligent factor of all.

Strategic beta refers to a methodology of index construction that seeks to achieve better risk-adjusted returns compared to traditional market capitalization weighted benchmark indices. Franklin Liberty Short Duration U.S. Government ETF is an active ETF and Franklin LibertyQ are strategic beta ETFs.

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Introducing Franklin LibertyQ: A new series of strategic beta ETFs designed to improve upon the benefits of traditional market-cap weighted ETFs by offering the potential for better investment outcomes.

Designed for Investment Outcomes

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Index Methodology Based on Research Driven Insights

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Core Portfolios

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Franklin LibertyQ ETFs track proprietary indices constructed from a deliberate combination of well-established performance attributes – often called factors - that together seek to deliver attractive risk-adjusted returns.

Traditional market cap weighted index strategies are popular for their ability to provide broad market exposure. However, they may also expose investors to unintended risks. Some of these risks include over-concentration in:

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Large and
mega-cap stocks

The largest two percent of the companies in the MSCI All Country World Index account for twenty-five percent of the index.

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Over-valued
stocks

Seven of the ten largest companies in the MSCI All Country World Index have high P/E ratios relative to their averages.

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Sector
weights

High sector concentrations, have at times, created additional risks.

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Geographic
Weights

The top three countries in the MSCI EM Index account for 50% of the index.

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Franklin LibertyQ ETFs track proprietary indices constructed from a deliberate combination of well-established performance attributes – often called factors - that together seek to deliver attractive risk-adjusted returns.

Quality

An important driver of stock performance

Value

Helps capture opportunities in undervalued companies

Momentum

Assists in avoiding "value" traps

Low Volatility

Helps reduce downside risk in uneven markets

Close

For illustrative purposes only. Source: © 2016 Morningstar, as of December 31, 2015. All rights reserved. Indexes are unmanaged, and one cannot invest directly in an index. They do not reflect any fees, expenses or sales charges.

Franklin LibertyQ ETFs seek to improve upon traditional market cap-weighted strategies through our unique methodology, drawing on insights from decades of investment research expertise by our specialized quantitative team. The result is a proprietary, custom-weighted multi-factor methodology which is calculated independently by MSCI as a custom index, and tracked by our LibertyQ ETFs.

Passive

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    Market Cap-Weighted Index ETFs and funds

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    Single Factor ETFs

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    Multi-Factor Equal-Weighted ETFs

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    Franklin LibertyQ ETFs
    Multi-Factor Custom-Weighted ETFs

    Franklin LibertyQ ETFs pursue investment outcomes by applying research driven insights to traditional index investing.

Active

Learn More About How the Factors Work

Our initial offering of Franklin LibertyQ products are designed to be core equity holdings.The line-up includes:

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choice below to
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Franklin LibertyQ
Global Equity ETF
FLQG
Franklin LibertyQ
Emerging Markets ETF
FLQE
Franklin LibertyQ
International Hedged Equity ETF FLQH
Franklin LibertyQ
Global Dividend ETF
FLQD
Fund Description1 Seeks to provide investment results that closely correspond, before fees and expenses, to the performance of its corresponding underlying index, LibertyQ Global Equity Index. Seeks to provide investment results that closely correspond, before fees and expenses, to the performance of its corresponding underlying index, LibertyQ Emerging Markets Index. Seeks to provide investment results that closely correspond, before fees and expenses, to the performance of its corresponding underlying index, LibertyQ International Equity Hedged Index. Seeks to provide investment results that closely correspond, before fees and expenses, to the performance of its corresponding underlying index, LibertyQ Global Dividend Index.
Universe MSCI ACWI Represents returns in 23 developed and 23 emerging markets. MSCI EM Represents returns in twenty-three emerging markets. MSCI EAFE 100% Hedged to USD Index Represents returns in developed markets in Europe, Australasia and the Far East. MSCI ACWI ex REITs Represents returns in 23 developed and 23 emerging markets.
Factors Utilized Quality 50%
Value 30%
Momentum 10%
Low Volatility 10%
Quality 50%
Value 30%
Momentum 10%
Low Volatility 10%
Quality 50%
Value 30%
Momentum 10%
Low Volatility 10%
Screens:
Dividend Sustainability
Dividend Growth
Factor:
Quality

1. All investments involve risks, including possible loss of principal. Special risks are associated with foreign investing, including currency fluctuations, economic instability and political developments; investments in emerging markets involve heightened risks related to the same factors. To the extent the funds focus on particular countries, regions, industries, sectors or types of investment from time to time, it may be subject to greater risks of adverse developments in such areas of focus than a fund that invests in a wider variety of countries, regions, industries, sectors or investments. The Franklin LibertyQ International Equity Hedged ETF will attempt to hedge the currency exposure of non-U.S. dollar denominated securities held in its portfolio by investing in foreign currency forward contracts. Investments in derivatives involve costs and create economic leverage, which may result in significant volatility and cause the fund to participate in losses (as well as gains) that significantly exceed the fund's initial investment. Currency management strategies could result in losses to the fund if currencies do not perform as the investment manager expect. Performance of the funds may vary significantly from the performance of an index, as a result of transactions costs, expenses and other factors. These and other risks are discussed in the fund’s prospectus.

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While there are numerous strategic beta products in the industry, we believe our approach is unique and is grounded in the following:

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Equity Performance Is Driven by Many Risk Factors

Factors represent important underlying drivers of equity returns. Some factors dominate others depending on the market environment.

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Not All Factors Are Created Equal

Quality and value are the most important contributors to stock performance, while momentum and low volatility offer technical signals that contribute to diversification.

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Our Multi-Factor Approach Has the Potential to Increase Returns and Reduce Risk

Different factors outperform at different stages of the market cycle, so diversifying across factors, with an emphasis on quality and value, can lead to stronger, more consistent risk-adjusted returns over the long-term.

Strategic beta refers to a methodology of index construction that seeks to achieve better risk-adjusted returns compared to traditional market capitalization weighted benchmark indices. There is no guarantee that any strategy will achieve its objective. Franklin LibertyQ ETFs are not riskless investments, and investors can lose money. For additional risk considerations please see the prospectus.

Decades of academic and Franklin Templeton research have helped our expert quantitative team identify four well-established factors that have demonstrated long-term outperformance.  Our analysts have created a proprietary definition for each of these factors, and applied a custom weighting. Franklin LibertyQ Global Equity, Franklin LibertyQ Emerging Markets and Franklin LibertyQ International Equity Hedged ETFs apply our custom mix, emphasizing quality and value which, we believe has the potential to help drive attractive returns, while seeking a degree of reduced downside protection.

Factor Mix

Quality

  • May be an important driver of stock performance
  • Helps reduce overall portfolio volatility
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Value

  • Helps capture    opportunities in undervalued companies
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Momentum

  • Helps avoid value traps
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Low Volatility

  • May help reduce overall portfolio risk during market downturns
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There is no guarantee that any strategy will achieve its objective. Franklin LibertyQ ETFs are not riskless investments, and investors can lose money. For additional risk considerations please see the prospectus.

Rationale1

  • May capture a more comprehensive profile of a firm’s earnings quality by considering profits, debt quality, and ability to generate cash
  • High-quality companies tend to be less volatile over the long term

Factor Definition1

  • Companies with stable earnings growth, strength of balance sheet, and efficient use of assets

Factor Descriptors1

  • Return on Equity (ROE)
  • Earnings Variability
  • Cash Return on Assets
  • Leverage

Factor Performance Profile1

  • Defensive
  • Low 10-year correlations of excess returns over MSCI ACWI vs:

    -0.50

    LibertyQ Value Factor

    0.48

    LibertyQ Momentum Factor

    0.56

    LibertyQ Low Volatility Factor

The information provided is for educational purposes only and should not be construed as investment advice. There is no guarantee that any strategy will achieve its objective. Franklin LibertyQ ETFs are not riskless investments, and investors can lose money. For additional risk considerations please see the prospectus. 1. The stated definition is based on Franklin Templeton’s internal research that was used to develop the Franklin LibertyQ methodology. The stated descriptors are examples of how the quality factor is measured.

Rationale1

  • Helps avoid penalizing non-financial companies with temporarily depressed earnings but whose earnings are expected to bounce back
  • Blending trailing and forward Price to Earnings (P/E) may provide a more comprehensive view of firm’s outlook
  • Comparing Price/Book ratios of financial firms may help evaluate different types of firms within the sector

Factor Definition1

  • Companies that appear to have low prices relative to their fundamental value

Factor Descriptors1

  • ex Financials
    • Blended P/E (average of Trailing and Forward)
    • Dividend Yield
  • Financials
    • Price to Book (P/B)
    • Dividend Yield

Factor Performance Profile1

  • Pro-cyclical
  • Low 10-year correlations of excess returns over MSCI ACWI vs:

    -0.50

    LibertyQ Quality Factor

    -0.57

    LibertyQ Momentum Factor

    -0.01

    LibertyQ Low Volatility Factor

The information provided is for educational purposes only and should not be construed as investment advice. There is no guarantee that any strategy will achieve its objective. Franklin LibertyQ ETFs are not riskless investments, and investors can lose money. For additional risk considerations please see the prospectus. 1.The stated definition is based on Franklin Templeton’s internal research that was used to develop the Franklin LibertyQ methodology. The stated descriptors are examples of how the value factor is measured.

Rationale1

  • Stocks with strong recent past performance tended to have excess price returns for short periods of time
  • Ranking stocks based on momentum may identify investment trends
  • Adjusting momentum by risk may help dampen the high volatility associated with momentum investing and may reduce the risk of large drawdowns
  • May help avoid value traps

Factor Definition1

  • Companies that exhibit shorter-term relative risk-adjusted price strength

Factor Descriptors1

  • 6-Month Risk-Adjusted Price Momentum
  • 12-Month Risk-Adjusted Price Momentum

Factor Performance Profile1

  • Pro-cyclical
  • Low 10-year correlations of excess returns over MSCI ACWI vs:

    0.28

    LibertyQ Quality Factor

    -0.49

    LibertyQ Value Factor

    0.14

    LibertyQ Low Volatility Factor

The information provided is for educational purposes only and should not be construed as investment advice. There is no guarantee that any strategy will achieve its objective. Franklin LibertyQ ETFs are not riskless investments, and investors can lose money. For additional risk considerations please see the prospectus. 1. The stated definition is based on Franklin Templeton’s internal research that was used to develop the Franklin LibertyQ methodology. The stated descriptors are examples of how the momentum factor is measured.

Rationale1

  • Historically, low volatility stocks have tended to decline less than the market during times of crises and market downturns
  • This defensive strategy has historically produced a premium to the market that has persisted over time

Factor Definition1

  • Companies that demonstrate lower than average volatility

Factor Descriptors1

  • Historical beta based on 2-year weekly returns

Factor Performance Profile1

  • Defensive
  • Low 10-year correlations of excess returns over MSCI ACWI vs:

    0.52

    LibertyQ Quality Factor

    0.03

    LibertyQ Value Factor

    0.09

    LibertyQ Momentum Factor

The information provided is for educational purposes only and should not be construed as investment advice. There is no guarantee that any strategy will achieve its objective. Franklin LibertyQ ETFs are not riskless investments, and investors can lose money. For additional risk considerations please see the prospectus. 1. The stated definition is based on Franklin Templeton’s internal research that was used to develop the Franklin LibertyQ methodology. The stated descriptors are examples of how the low volatility factor is measured.

ETFs

MORE ETFs

Potential Benefits of Franklin LibertyQ Strategy

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Seeks Strong Risk-Adjusted, Long-Term Performance

Our proprietary rules-based approach is designed to pursue market upside with reduced downside, to seek higher risk-adjusted returns than cap-weighted indices.

x

Seasoned and Quantitative ETF Specialists

Strategies developed by Franklin’s team of seven quantitative experts and managed by portfolio management professionals who each have more than a decade of ETF experience.

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Traditional ETF Features

Franklin LibertyQ ETFs offer daily transparency of fund holdings, no minimum investment, trading throughout the day and the opportunity to minimize turnover and tax liabilities.

For illustrative purposes only. There is no guarantee that any strategy will achieve its objective. Franklin LibertyQ ETFs are not riskless investments, and investors can lose money. For additional risk considerations please see the end disclosures. Ordinary brokerage commissions apply. Brokerage commissions will reduce returns. Rules based approach is defined as an investment strategy based on various, pre-determined rules. All investments involve risks, including possible loss of principal. Special risks are associated with foreign investing, including currency fluctuations, economic instability and political developments; investments in emerging markets involve heightened risks related to the same factors. To the extent the funds focus on particular countries, regions, industries, sectors or types of investment from time to time, it may be subject to greater risks of adverse developments in such areas of focus than a fund that invests in a wider variety of countries, regions, industries, sectors or investments. The Franklin LibertyQ International Equity Hedged ETF will attempt to hedge the currency exposure of non-U.S. dollar denominated securities held in its portfolio by investing in foreign currency forward contracts. Investments in derivatives involve costs and create economic leverage, which may result in significant volatility and cause the fund to participate in losses (as well as gains) that significantly exceed the fund's initial investment. Currency management strategies could result in losses to the fund if currencies do not perform as the investment manager expect. Performance of the funds may vary significantly from the performance of an index, as a result of transactions costs, expenses and other factors. These and other risks are discussed in the fund’s prospectus.

...

The Investment Process - Three Core Portfolios

  • 1. Start with an Investment Universe
  • 2. Apply Factor Methodology
  • 3. Create Custom Index*
  • 4. Franklin LibertyQ ETFs

Indices Rebalanced
Semi-Annually

Click on an investment
universe to continue

  • MSCI All Country World Index
  • MSCI Emerging Markets Index
  • MSCI EAFE Index
  • MSCI ACWI ex REITs Index
Composite Score
Select Top 25%
CustomLibertyQ Global
Equity Index
Global
Equity
ETF
CustomLibertyQ Emerging
Markets Index
Emerging
Market
ETF
CustomLibertyQ International
Equity Hedged Index
EAFE
Hedged
ETF
CustomLibertyQ Example
example
EXA
Example
SAMPLE

Portfolio Manager seeks to track the custom index, considering risk, return, and cost/tax implications of each trade.

Step 1: We begin with a broad based MSCI index which represents the desired investment universe

Step 2: A score is applied to each of the stocks based on factor weightings of 50% quality, 30% value, 10% momentum and 10% volatility

Step 3: Based on each stock’s composite score, the top 25% of stocks in the broad MSCI index are selected for the custom LibertyQ index

Step 4: The ETF manager builds an ETF designed to track the custom index, taking into consideration risk, return and cost/tax implications of each trade, while limiting each stock to no more than 2% of the entire portfolio

The Investment Process - Three Core Portfolios

  • 1. Start with an
    Investment Universe
  • 2. Filter to
    Identify Attributes
  • 3. Apply Factor
    Methodology
  • 4. Create
    Custom Index
  • 5. Franklin
    LibertyQ ETF

Indices Rebalanced
Semi-Annually

Click on an investment
universe to continue

  • MSCI All Country World Index
  • MSCI Emerging Markets Index
  • MSCI EAFE Index
  • MSCI ACWI ex REITs Index
...
...

...

...

...

Custom ...
...

...

Step 1: Start with a broad-based index such as the MSCI All Country World Index ex REITs

Step 2: Filter for companies with dividend sustainability and another for companies that demonstrate dividend growth

Step 3: After the filters are applied, a score is applied to the stocks, based on quality

Step 4: Based on each stock’s composite score, the top 25% of stocks are selected for the custom LibertyQ Global Dividend Index

Step 5: The ETF manager builds an ETF designed to track the custom index, taking into consideration risk, return and cost/tax implications of each trade, while limiting each stock to no more than 2% of the entire portfolio

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