FTI smart beta ETF offers ‘lower risk’ access to emerging markets

Franklin Templeton Investments is turning to “compelling” emerging markets in the latest addition to its smart beta range.

The Franklin LibertyQ Emerging Markets Ucits ETF is the first of its type in Europe, the asset manager says. It will incorporate quality, value, momentum and low volatility factors.

The ETF tracks an in-house designed index the LibertyQ Emerging Markets index and aims to outperform the MSCI Emerging Markets index.

It began trading on the London Stock Exchange today.

It comes just one month after Franklin Templeton announced it was launching its first suite of smart beta ETFs to the UK market.

There are now five products in the Franklin LibertyQ Ucits Smart Beta ETF range, with three, including the new emerging market fund, focussing on quality stocks. Two further products focus on income.

Global head of ETFs Patrick O’Connor says emerging markets offer “some of the most compelling opportunities available in equity markets today” and that the smart beta ETF would offer a lower risk way of accessing the sector.

A multi-factor screened approach can help to identify attractive opportunities within emerging markets, while providing diversification among investment factors, resulting in a potentially less volatile return profile,” says O’Connor.

Tilney managing director Jason Hollands says there’s a “good case” for utilising factor funds in volatile markets and especially in emerging markets where China accounts for nearly half of most indices.

“We already use instruments like the iShares EM Minimum Volatility UCITS ETF which weights in favour of stocks with lower volatility characteristics and it is good to see further choice and innovation in this space,” Hollands says.

Franklin Templeton UK country head Martyn Gilbey says the product could act as a strategic, long-term allocation investors looking to diversify portfolios. 

Fund Strategy has highlighted the risks associated with a passive approach in emerging markets due to high exposure to countries like South Korea, which could be caught in the crossfire if Donald Trump’s nuclear rhetoric against Pyongyang erupts into reality.

Within emerging market debt, the popular L&G Emerging Markets Government Bond index hard currency index has 3.3 per cent in Venezuela.

A Franklin Templeton spokesperson says smart beta indices avoid this market-cap weighted exposure.

“In our LibertyQ Emerging Market multi-factor index if a country weight is high it is because those stocks within that country have scored well for exposure to the investment style factors of quality, value, low volatility and momentum. This provides a screened emerging market exposure,” the spokesperson says.

The Franklin LibertyQ UCITS Smart Beta ETF range:

  • Franklin LibertyQ Emerging Markets UCITS ETF (new)
  • Franklin LibertyQ Global Equity SRI UCITS ETF
  • Franklin LibertyQ U.S. Equity UCITS ETF
  • Franklin LibertyQ Global Dividend UCITS ETF
  • Franklin LibertyQ European Dividend UCITS ETF