Industry Updates

Franklin Templeton to slash fees and remove China from Asia ex-Japan ETF

TER will reduce from 0.40% to 0.14%

Theo Andrew

China flags in a row

Franklin Templeton is proposing to slash its fees and exclude China from its Asia ex Japan ETF as it looks to switch from a multi-factor strategy to core passive.

Shareholders are set to vote on 9 November to change the benchmark of the $10m Franklin AC Asia ex Japan UCITS ETF (FRQX) from the LibertyQ AC Asia Ex Japan Equity index to the FTSE Asia ex Japan ex China index.

Following the change, the ETF will be renamed to the Franklin FTSE Asia ex China ex Japan UCITS ETF and will see its total expense ratio (TER) drop from 0.40% to 0.14%.

In a note to investors, Franklin said: “The rationale for the change to the fund's investment objective is to move from a multi-factor strategy to a fully passive index tracking ETF with exposure to Asian securities, excluding Japan and China for the equity exposure to greater align with our clients' needs for the region.

“Additionally, by carving out China from the investment universe, investors will be able to manage their Chinese allocations and risks separately to their broader Asian exposures.”

China is currently by far the largest weighting in FRQX, with over 34% of the ETF allocated to the market, over double the next biggest market, Taiwan, at 16.9%.

It added investors will benefit from a reduced fee by switching to a “core passive broad benchmark exposure”.

Investors have been split on the merits of excluding China from broader regions such as Asia and emerging markets with those in favour arguing it allows for more precise portfolio construction.

The country has been a laggard on other countries in the region over the past year, with the MSCI  China index returning -37% over the past three years.

For the changes to be made at least 75% of votes cast by shareholders must be in favour of the benchmark switch.

Should it be approved, the ETF will undergo the changes on 1 December.

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