Franklin Templeton Changes Mutual Funds to ETFs

October 31, 2022

Franklin Templeton Investments, which manages $1.4 trillion in assets, converted a pair of mutual funds into exchange-traded funds, as it continues its effort to build a $50 billion ETF business.  

Franklin Templeton, a major mutual fund company, now offers 58 U.S. ETFs, with about $9 billion in assets. The company is part of the San Mateo, California-based Franklin Resources Inc. The funds, Franklin Templeton’s first mutual-fund-to-ETF conversions are the BrandywineGLOBAL-Dynamic US Large Cap Value ETF (DVAL) and the Martin Currie Sustainable International Equity ETF (MCSE).  

The conversion follows similar moves by financial firms including Neuberger Berman Group, as demand for ETFs outpaces mutual funds. Franklin Templeton wants to create a $50 billion ETF business over the next three years, making it an industry heavy hitter. 

The ETF industry has nearly doubled in five years to more than $6 trillion in assets, according to ETF.com data, thanks to advantages like tax efficiencies and intraday trading not available with mutual funds. At the same time, studies are forecasting slower growth in the mutual fund industry. Guinness Atkinson last year was the first to convert a mutual fund to an ETF, and several have followed. 

The subset of actively managed funds is also seeing greater demand as investors bet they will outperform passive funds that track broad indexes like the S&P 500. 

The Franklin ETFs aim for long-term capital appreciation: DVAL is focused on U.S. equities, seeking to invest at least 80% of its net assets in the equity securities of U.S. large capitalization companies. MCSE is focused on the equity and equity-related securities of foreign companies, seeking to invest in companies with a strong record of high and sustainable returns.

“Both [funds] met the three criteria we’d identified as important for a conversion: strength in investment capability; efficacy of investment strategy in an ETF vehicle; and filling a gap in Franklin Templeton’s current ETF lineup,” Patrick O’Connor, head of global ETFs for Franklin Templeton, said in an email to ETF.com. 

DVAL has been run by Brandywine Global for 15 years, and MCSE has been managed by Martin Currie for almost seven years. 

DVAL currently has 123 holdings, with its top sector allocations focused on financials, consumer discretionary and information technology. It competes with other large cap funds such as the Schwab U.S. Large-Cap Value ETF (SCHV) and the Vanguard Value ETF (VTV).  

MCSE has 25 holdings, and its top geographic allocations for foreign equity are Europe, Asia and Australia/New Zealand. The ETF enters the same arena as other funds focused on sustainable foreign equity, such as the BNY Mellon Sustainable International Equity ETF (BKIS) and the Janus Henderson International Sustainable Equity ETF (SXUS)

DVAL and MCSE both list on the Nasdaq and come with expense ratios of 0.65% and 0.75%, respectively. 

 

Contact Zoya Mirza at [email protected] 

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