Industry Updates

Franklin Templeton tightens quality factor on US equity ETF

Return on assets to be added to the strategy

Theo Andrew

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Franklin Templeton has switched the index on its US equity ETF adding an additional component to its quality factor metric.

Effective 1 March, the Franklin LibertyQ U.S. Equity UCITS ETF (FLXU) has switched from tracking the Franklin LibertyQ US Large Cap Equity index to the Franklin US Equity index.

As a result, FLXU will now include “return on assets” as an additional metric when assessing the quality factor.

The new metric will determine how profitable a company is in relation to its total assets and is a widely used corporate measure to determine how efficiently a company uses its assets to generate a profit.

Volatility has been a mainstay in 2022 often creating a market environment that benefits quality factor stocks.

The three remaining factors the ETF has exposure to – value, momentum and low volatility – will continue unchanged.

In a statement, Franklin Templeton said: “The new index is effectively the same as the current index but with the inclusion of “return on assets” as an additional aspect which will be applied in selecting constituents under the “quality” factor.

“This change to the new index will not result in any material change to the investment policy of the fund and the factors and approach remains the same.”

The name and the total expense ratio (TER) of the ETF – currently 0.25% - will also not be changed.

Holdings of the underlying index are currently selected from the Russell 1000 index and currently comprise 226 securities.

Top weightings currently include defence company Lockheed Martin (1.25%), healthcare giant Bristol Myers Squibb (1.18%) and Coca Cola (1.14%).

The issuer has recently ramped up its European expansion, appointed an ETF sales specialist in Italy and registering a 16-stong UCITS range in France.

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