Calgary and California both figure prominently in Toronto-based Franklin Templeton Investments Corp.'s debut as Canada's newest provider of exchange-traded funds. Between them, the four Franklin Liberty ETFs being rolled out today and next week will cover Canadian, U.S. and overseas developed-market equities, and the largest and most credit-worthy segment of the Canadian corporate-bond market.
Opening for trading today on the Toronto Stock Exchange are Franklin Liberty Risk Managed Canadian Equity (FLRM) and Franklin Liberty Canadian Investment Grade Corporate (FLCI). Both are actively managed by the company's Calgary-based Franklin Bissett Investment Management division.
They'll be joined on June 5 by two strategic-beta mandates: Franklin LibertyQT U.S. Equity Index (FLUS) and Franklin LibertyQT International Equity Index (FLDM). Both employ the same rules-based strategies as U.S.-listed ETFs sponsored by the Canadian subsidiary's San Mateo, California-based parent 
Franklin Resources Inc. (BEN), which operates globally as Franklin Templeton Investments.
The Canadian launch is an extension of the U.S. ETF business, said Patrick O'Connor, Franklin Templeton's head of global ETFs, in an interview from San Mateo. The company entered the ETF market in the U.S. on June 6, 2016, and now manages 11 ETFs with combined assets of US$650 million. With an ETF beachhead now having been established in Canada, plans call for European-domiciled ETFs to be launched by Franklin Templeton this summer.
Over time, Canadian investors can expect to see the opening line-up of four ETFs expanded, adding to the roughly 500 Canadian-listed ETFs now on the market. "Our initial suite of ETFs is designed to provide investors with core holdings to meet their investment needs," said Duane Green, president and CEO of the Canadian subsidiary, in a release. "This is just the beginning for the Canadian market."
As described in the prospectus, Franklin Liberty Risk Managed Canadian Equity seeks to provide long-term capital appreciation with reduced volatility relative to the broad Canadian equity market, and will employ a rules-based model.
This model incorporates a mix of historical and projected financial and stock market data and is designed to identify factors measuring growth, value, risk and momentum.
As O'Connor explains, however, the model is only part of the investment process for Franklin Bissett's active managers. There is no rules-based index that they are compelled to follow in their securities selection. The two co-managers -- Jason Hornett and director of equity research Tim Caulfield -- also have the flexibility to employ other active strategies such as purchasing put options on equity indexes and ETFs.
Franklin Liberty Canadian Investment Grade Corporate, today's other new offering, will be actively managed by Franklin Bissett fixed-income manager Darcy Briggs and Adrienne Young, the team's director of credit research. Along with corporate bonds, the ETF may also hold other instruments such as mortgage-backed securities, floating-rate debt and derivatives. The portfolio may continue to hold below-investment-grade securities after a credit downgrade, and may invest a small portion of its assets in Canadian-dollar-denominated debt issued by foreign corporations.
The U.S. equity and international equity ETFs launching next week each employ a multi-factor process, which has a 50% weight in quality factors and 30% in value factors. The quality factor incorporates metrics such as return on equity, earnings variability, cash return on assets, and leverage. The value factor's components include price to earnings, price to forward earnings, price to book value, and dividend yield. Also part of the stock-selection process, to a lesser extent, are low-volatility and momentum factors. Each has a 10% weighting in the multi-factor methodology.
Franklin LibertyQT U.S. Equity Index will seek to replicate the performance, before fees and expenses, of the LibertyQ U.S. Large Cap Equity Index. This index is a subset of the of large- and mid-capitalization Russell 1000 Index, which covers more than 90% of the total market capitalization of all listed U.S. equities. This is the same index tracked by the U.S.-listed Franklin LibertyQ U.S. Equity (FLQL), which was launched on May 1. Rebalanced semi-annually, the LibertyQ index limits the weighting of any company to 1% of the portfolio.
Franklin LibertyQT International Equity Index's benchmark is the LibertyQ International Equity Index, a subset of the MSCI EAFE Index. This index, also rebalanced semi-annually, limits the weighting of any company to no more than 2%. Since this ETF does not employ currency hedging, it differs from the U.S.-listed Franklin LibertyQ International Equity Hedged (FLQH), which was launched in June 2016.
Management fees of the four TSX-listed ETFs, which also cover most operating expenses, range from 0.25% to 0.40%. (See table.) This puts them in low to medium price points within the Canadian universe of actively managed and strategic-beta ETFs. O'Connor, whose extensive experience in ETF product development includes having been a managing director of iShares in Canada, offered this self-assessment of Franklin's fees: "We like where we are. We think it's competitive."
| ETF name | Symbol | Mgmt Fee (%) | |
| Franklin Liberty Risk Managed Canadian Equity | FLRM | 0.30 | |
| Franklin LibertyQT U.S. Equity Index | FLUS | 0.25 | |
| Franklin LibertyQT International Equity Index | FLDM | 0.40 | |
| Franklin Liberty Canadian Investment Grade Corporate | FLCI | 0.40 | |
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| Source: Franklin Templeton Investments Corp. | |||
