Smart beta ETFs are one of the fastest growing investment options available to investors. While the concept may seem complicated, watch this video for a simple explanation of how they work and what they are designed to achieve.
Smart beta refers to a methodology of index construction that seeks to achieve better risk-adjusted returns compared to traditional market capitalization weighted benchmark indexes. There is no guarantee that any strategy will achieve its objective. Franklin LibertyQ ETFs are not riskless investments, and investors can lose money. For additional risk disclosures, please see the prospectus.
...is an index that has been designed to achieve a specific outcome.
…is an evolved way of creating an index, using rules to target companies that demonstrate specific “factors”, or drivers of performance, in order to achieve a specific objective.
…targets a variety of factors, combines them in a strategic way, which may lead to stronger returns with less risk over time.
Chandra Seethamraju, Ph.D., Vice President, Director of Systematic Modeling, Franklin Templeton Solutions, discusses the methodology behind Franklin’s multi-factor smart beta ETFs, including the rationale behind LibertyQ’s custom factor definitions and their factor weightings.
Smart beta refers to a methodology of index construction that seeks to achieve better risk-adjusted returns compared to traditional market capitalization-weighted benchmark indexes. There is no guarantee that any strategy will achieve its objective. Franklin LibertyQ ETFs are not riskless investments, and investors can lose money. For additional risk disclosures, please see the prospectus.
While many smart beta strategies utilize the same four factors, many employ standard, widely accepted approaches to measuring these factor exposures. We sought to develop custom factor measures which we believe could provide a more comprehensive evaluation of a stock’s exposure to each factor.
Our LibertyQ multi-factor weighting is 50% quality, 30% value, 10% momentum and 10% low volatility. Based on our research, we emphasize the quality and value factors because both factors philosophically represent the way Franklin Templeton approaches active stock picking.
LibertyQ's methodology is differentiated by how we define factors and how we combine or weight factors.
Our research led us to utilize four well-known factors in our smart beta ETFs: quality, value, momentum, and low volatility.
The results of our smart beta research have lead us to believe that our robust factor definitions and custom factor weightings may help improve risk adjusted returns over the long-term.
Important Legal Information
This material is intended to be of general interest only and does not constitute legal or tax advice nor is it an offer for shares or invitation to apply for shares of any of the Franklin LibertyShares ETF ranges. Nothing in this material should be construed as investment advice.
Past performance is not an indicator, nor a guarantee of future performance. The value of investments and any income received from them can go down as well as up, and investors may not get back the full amount invested. An investment in Franklin LibertyShares ETFs entails risks which are described in the prospectus and the relevant Key Investment Information Document. Currency fluctuations may affect the value of overseas investments. When investing in a fund denominated in a foreign currency, performance may also be affected by currency fluctuations. Where a fund invests in a specific sector or geographical area, the returns may be more volatile than a more diversified fund. There is no guarantee that the Fund will achieve its objective.
Franklin LibertyShares ETFs (domiciled outside of the U.S. or Canada) may not be directly or indirectly offered or sold to residents of the United States of America or Canada. ETFs trade like stocks, fluctuate in market value and may trade at prices above or below their net asset value. Brokerage commissions and ETF expenses will reduce returns.
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