Franklin Templeton Launches Active Bond ETF

Franklin Templeton launched a new actively managed bond ETF under its investment manager Brandywine Global on Thursday as the Federal Reserve nears the end of its rate hikes. 

The BrandywineGLOBAL - U.S. Fixed Income ETF (USFI) is an actively managed bond fund with an expense ratio of 0.39%. It invests in U.S. Treasuries, U.S. investment grade corporate bonds and U.S. mortgage bonds, with a duration between one and 10 years.  

The exchange-traded fund is Brandywine’s second, its first being the BrandywineGLOBAL - Dynamic US Large Cap Value ETF (DVAL), an actively managed large cap value stock ETF, which has $156 million in assets. The new fund adds to Franklin Templeton’s lineup of 60 ETFs, which have $13.2 billion in assets among them. 

The fund will replicate the U.S. portion of a fixed income strategy that Brandywine used for separately managed accounts for institutional investors since 1995, and currently has $3.2 billion in assets. 

USFI portfolio manager Jack P. McIntyre thinks the timing of the launch is good. He believed 2023 would be the year for fixed income after last year’s bloodbath. 

“Bonds had a historically bad year, as high inflation combined with rising rates to sink bond returns,” McIntyre said in an interview.  

McIntyre is a bit bearish about the future of the U.S. economy. “The stimulus during the pandemic extended the lag between the Fed tightening monetary policy and that policy having an effect on the economy,” he said. “The first half of the year was playing offense, while the second half will be playing defense. Business loans roll over and borrowing costs increase. That will be priced into the market.” 

Whether there will be a soft landing or a recession does not change his bullishness on bonds because McIntyre said the commonality is that inflation is going down in either case: “Inflation is our kryptonite; if inflation is coming down, that helps bonds.”  

Contact Gabe Alpert at [email protected]