Today Franklin Templeton is rolling out three actively managed fixed-income ETFs. The three funds, their tickers and expense ratios are as follows:
- Franklin Liberty High Yield Corporate ETF (FLHY), 0.40%
- Franklin Liberty International Aggregate Bond ETF (FLIA), 0.35%
- Franklin Liberty Senior Loan ETF (FLBL), 0.45%
All three funds list on the Cboe BZX exchange, which is owned by Cboe Global Markets, the parent company of ETF.com.
FLHY primarily looks to deliver current income, with a secondary objective of capital appreciation. It does this by investing in a wide range of junk bonds, including bank loans, corporate debt, debentures, senior loans, convertible securities and subordinated debt, among other types of debt securities. FLHY can also use derivatives to execute its strategies, including for hedging purposes or to enhance returns. The investments in the portfolio may be from issuers in the U.S., developed or emerging markets and can be denominated in any currency, the prospectus says.
According to the document, the fund’s manager evaluates individual securities and their issuers rather than rely on ratings from agencies. FLHY’s bottom-up approach is driven by research and based on fundamentals, with a team of analysts looking at individual securities.
FLIA has a stated goal of providing total investment return through interest income and capital appreciation. The fund invests mainly in fixed- and floating-rate bonds and other fixed-income securities issued by foreign governments and corporations domiciled outside the U.S. At any given time, the fund must include issuers from at least three different non-U.S. countries, but has no requirement regarding exposure to developed or emerging markets, the prospectus says.
The fund also has no requirements regarding its maturity or duration, with both expected to fluctuate with the manager’s view of current conditions. However, it does have a limit on high-yield debt at no more than 20% of the portfolio, with holdings primarily comprising investment-grade securities. It can also use derivatives for currency or interest rate hedging purposes, the document notes.
Perhaps most interesting, the prospectus notes that the fund is classified as nondiversified, and FLIA can be more concentrated in a smaller number of issuers than a diversified fund would be. The fund’s manager will take into account interest rates, currency exchange rates and credit risks as well as global conditions when selecting investments.
FLBL will target current income and the preservation of capital by investing in senior loans such as leveraged, bank or floating-rate loans, as well as collateralized debt obligations, that have been issued by domestic and foreign entities, according to the prospectus.
Senior loans tend to be subinvestment grade, but take priority in case of a credit event, meaning those holding the securities will be paid before other creditors, the document notes. The fund’s manager will conduct its own credit analysis of the issuer to determine the issuer’s ability to make the payments, taking into account such factors as industry, amount of assets and creditworthiness.
The prospectus also specifically states that FLBL can invest in what are termed “covenant lite” loans, which have fewer investor protections or requirements of issuers. Foreign issuers are limited to 25% of the fund’s total assets, while securities in the portfolio will mostly be denominated in U.S. dollars.
According to the document, any individual industry is limited to 25% of the portfolio.
Contact Heather Bell at [email protected]