INVESTMENT: Franklin Templeton celebrates the ETF’s fifth anniversary this year. A reason to be happy?
Caroline Baron: Starting an ETF business from scratch was a new challenge for us as a fund company, but of course we took advantage of the experience that exists in the active fund business. In terms of infrastructure, we’re almost there. I think we have a good team that can lead the market. And we have been able to be recognized by investors as an ETF provider. I think the next five years will be exciting.
Where do you stand today in this highly competitive market?
baron: We are still at the beginning. As you will undoubtedly notice, there are always new providers entering the market. This indicates that ETFs are attracting more and more attention. Our offering currently consists of 20 UCITS ETFs and we plan to continue to cater to our clients in the coming years, for example with thematic ETFs or fixed income ETFs.
How do you intend to stand out from the growing competition?
baron: We are a large asset manager with a global presence. With the acquisition of Legg Mason, we have expanded our efficiencies. We are now trying to reflect in ETFs what we have demonstrated in active portfolio management. At Smart Beta, for example, we aim to offer alternatives to traditional market value-weighted ETFs, and through our rules-based proprietary methodology, we’ve reproduced Franklin Templeton’s philosophy of investing in good companies with a solid model and trading those companies at a reasonable price. Price price (i.e. investing primarily in quality and value factors).
This allows investors to better weather the ups and downs of the markets and have more stability in their portfolios with less risk than traditional passive ETFs in the same areas. We’ve also broken new ground with actively managed fixed-income ETFs, as an alternative or supplement to traditional market capitalization-weighted indexes, which tend to invest in companies or countries that are more indebted.
We launched a short-term Euro ETF in 2018 to help our clients get out of negative interest rates and store money more efficiently and flexibly. Apart from that, for fixed income, we currently see great potential in green bonds. It is not just the ECB that is pushing this issue aggressively. Recently, the Middle East has increasingly invested in this sector. The field of sustainability is also key for us. Combining the Paris Standards and ETFs together was an obvious choice for us. We see strong investor demand in this area and the need to reallocate core provisions from a sustainability perspective.
How do you position yourself in the emerging markets that are Franklin Templeton’s DNA?
baron: We aim to be as cost effective as possible and try to challenge the market with a range of ETFs in one country including China, India, Brazil, Korea and most recently Taiwan. Costing between 9 and 19 basis points, it’s much cheaper than most products available today. We’ve found that Customization for emerging markets from a large scale Shift the spectrum towards looking at specific countries in light of the geopolitical context. This is what we call emerging market segmentation. Not all emerging markets are the same. Each provides a unique investment environment.