ETF Watch: Franklin Plans 2 Muni Bond Funds

March 28, 2017

A recent filing from Franklin Templeton outlines the firm’s plans to launch two actively managed municipal bond ETFs. The Franklin Liberty Intermediate Municipal Opportunities ETF and Franklin Liberty Municipal Bond ETF will join its two other similarly active fixed-income ETFs.

The Franklin Liberty Short Duration U.S. Government ETF (FTSD) is one of Franklin’s largest ETFs, with nearly $173 million in assets under management (AUM), while the Franklin Liberty Investment Grade Corporate ETF (FLCO) has $53 million in AUM. The former was Franklin’s first ETF and rolled out in 2013, almost three years before the rest of the firm’s lineup started listing on the U.S. markets.

Intermediate Municipal Opportunities ETF

Of the new funds, the intermediate municipal opportunities fund will primarily target municipal bonds that are free from federal income taxes such as the alternative minimum tax (AMT), although up to 20% of the portfolio can comprise securities that are subject to the AMT, the prospectus said.

The fund will aim for an average dollar-weighted maturity of three to 10 years, but it has no restrictions on the maturities of the securities it holds or their credit rating. No more than 25% of the portfolio may be invested in a single state or territory, and up to 35% of the portfolio can be invested in U.S. territories rather than states, the prospectus added.

The document further noted that the fund will use a buy-and-hold approach to investing with the intention of harvesting income.

Municipal Bond ETF

The municipal bond fund is similar to the municipal opportunities fund in that it can hold up to 20% of its portfolio in taxable muni bonds, but there are key differences from the other fund. For example, it targets a dollar-weighted average portfolio of five to 15 years, and it limits the amount invested in territories rather than states to 20% of the portfolio. Further, it only targets the top four credit rating categories rather than the entire ratings spectrum.

In terms of investment approach, the fund will also use a buy-and-hold strategy with a goal of achieving income instead of capital gains from trading.

The filing did not include expense ratios or tickers, but it did indicate that the funds will list on the NYSE Arca exchange.

Contact Heather Bell at hbell@etf.com.

 

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