The combination of an Average People Pillar rating and a Low Process Pillar rating limit  Franklin Emerging Mkt Core Div TltIdxETF to a Morningstar Medalist Rating of Negative.  The portfolio maintains a sizable cost advantage over competitors, priced within the lowest fee quintile among peers.  

 The strategy gets a Low Process Pillar rating. Independent of the rating, analysis of the strategy's portfolio shows it has maintained a significant underweight position in volatility exposure and an overweight in yield exposure compared with category peers. Low volatility exposure is attributed to stocks with a lower standard deviation of returns. And a high yield exposure is rooted in holding high dividend-paying or buyback stocks. The strategy’s management team earns an Average People Pillar rating. The strategy's parent organization earns the firm an Average Parent Pillar rating. People Pillar and Parent Pillar ratings for this strategy are indirectly assigned by a Morningstar analyst rather than algorithmically derived. Please see the notes following each pillar section for more details. The details of assigning methods can be found in each pillar section.

Analyst Rating

Stewart Information Services

Fisker

Premier Financial

Asbury Automotive Group

VictoryShares Emerging Market Volatility Wtd ETF

ReneSola

Seaspan

First Trust Multi Cap Value AlphaDEX Fund

Credicorp

Morningstar's evaluation of this security's process aims to determine the likelihood that it will outperform its Morningstar Category index on a risk-adjusted basis over the long term. Franklin Emerging Mkt Core Div TltIdxETF earns a Low Process Pillar rating. 

The main driver of the rating is the fund's weak long-term risk-adjusted performance. This can be seen in its five-year alpha calculated relative to the category average, which suggests that the process has struggled over that period. The parent firm's disappointing risk-adjusted performance, as shown by its average 10-year Morningstar Rating of 2.5 stars, also holds the process back. A lower star rating suggests that the firm has struggled to outperform on a risk-adjusted basis. The parent firm's five-year risk-adjusted success ratio of 37% further detracts from the process. The measure indicates the percentage of a firm's funds that survived and beat their respective category's median Morningstar Risk-Adjusted Return for the period. The parent's modest success ratio suggests that the firm could do better across its fund lineup.

 This strategy skews toward smaller, more value-oriented companies compared with its average peer in the Diversified Emerging Mkts Morningstar Category. Analyzing additional factors, this strategy has consistently exhibited a tilt toward low-volatility stocks or companies whose shares have a history of lower standard deviation of returns, compared with its Morningstar Category peers in recent years. Such holdings can limit a strategy's downside, but cause it to lag in bull markets. In the latest month, the strategy was also less exposed to the Volatility factor compared with Morningstar Category peers. The managers have also tended to overweight yield during recent years, shown by the portfolio's high exposure to dividends or buybacks. Higher-yield stocks can provide steady income, but also have their risks. Dividend payers may cut payouts, for instance, if their earnings fall. Compared with category peers, the strategy also had more exposure to the Yield factor in the most recent month. In addition, this strategy has constantly held more illiquid stocks, evidenced by holdings' low trading volume, resulting in higher liquidity risk exposure than peers. Less-liquid stocks might offer strong returns to compensate for their risks, but they can be harder and more expensive to trade in bear markets. In recent months, the strategy also had less Liquidity factor exposure than its peers. More information on a fund and its respective category's factor exposure can be found in the Factor Profile module within the Portfolio section. 

 The portfolio is overweight in financial services and utilities relative to the category average by 5.6 and 3.1 percentage points, respectively. The sectors with low exposure compared to category peers are consumer cyclical and healthcare, underweight the average by 5.1 and 3.4 percentage points of assets, respectively. The strategy owns 564 securities and its assets are more dispersed than peers in the category. In particular, 19.2% of the portfolio's assets are concentrated in the top 10 fund holdings, as opposed to the typical peer's 25.3%. And finally, in terms of portfolio turnover, looking at year-over-year movements, 111% of the fund's holdings have changed, whether through increasing, decreasing, or changing a position.

Process

Franklin Templeton’s team is valuable but does not stand out as one of the industry's best, warranting an Average People Pillar rating. There are four managers listed on the fund: Hailey Harris, Basit Amin, Dina Ting, Joe Diederich. Together, they manage a total of 32 strategies, with a Bronze asset-weighted average Morningstar Medalist Rating, demonstrating their potential to deliver positive alpha relative to the category median in aggregate.  

 Note: This People Pillar rating is indirectly assigned by an analyst. Morningstar analysts evaluate the People Pillar for passive products at the brand level and may also differentiate by asset class. There is at least one other passive strategy at the firm that is covered by a Morningstar analyst, so the People Pillar rating of the fund is inherited from the rating that the Morningstar analyst assigned to investment vehicles under the same brand name.

Average

People

Franklin Templeton Investments, the asset-management arm of publicly traded but family managed Franklin Resources BEN, has been busy with acquisitions. The struggle in streamlining these disparate capabilities underpins its Average Parent rating. 
Franklin’s July 2020 acquisition of multiboutique manager Legg Mason remains its largest as of March 2023, but the firm has continued to grow through acquisitions. Its April 2022 and November 2022 purchases of Lexington Partners and Alcentra, respectively, make it one of world’s largest managers of alternative investments (with alts comprising USD 231 billion of its USD 1.4 trillion assets under management as of December 2022), while its July 2022 acquisition of O’Shaughnessy Asset Management adds a novel direct-indexing capability to its managed account offerings. These purchases, however, do little to alleviate the operational complexity of a firm with dozens of investment teams split by asset class, region, and investment platform.   
Although there are several standout strategies at the firm, many teams have struggled with personnel turnover, succession challenges, and unappealing performance patterns. Shepherding these geographically disparate capabilities, which have varying levels of centralization of distribution and risk management, shall be quite the challenge for the firm to manage.

Parent

Franklin Emerging Market Core

DIEM  is passively managed to invest in high dividend yield stocks across the emerging markets equity space.

CSOP FTSE China A50 ETF

Xtrackers Harvest CSI 300 China A-Shares ETF

Xtrackers Harvest CSI 500 China A-Shares Small Cap ETF

Xtrackers MSCI China A Inclusion Equity ETF

Avantis Emerging Markets Equity ETF

Avantis Emerging Markets Value ETF

VanEck Vectors Brazil Small-Cap ETF

Direxion Daily MSCI Brazil Bull 2X Shares

ProShares UltraShort MSCI Brazil Capped

Morgan Stanley China A Share Fund Inc

Direxion Daily CSI 300 China A Share Bull 2X Shares

VanEck Vectors ChinaAMC SME-ChiNext ETF

iShares MSCI China A ETF

WisdomTree China ex-State-Owned Enterprises Fund

Xtrackers MSCI Emerging Markets Hedged Equity ETF

Dimensional Emerging Markets Value ETF

Direxion Daily Emerging Markets Bull 3X Shares

Direxion Daily Emerging Markets Bear 3X Shares

iShares MSCI Emerging Markets ETF

ProShares Ultra MSCI Emerging Markets

ProShares UltraShort MSCI Emerging Markets

Xtrackers Emerging Markets Carbon Reduction and Climate Improvers ETF

Templeton Emerging Markets Fund

Global X Next Emerging & Frontier ETF

iShares MSCI Emerging Markets ex China ETF

WisdomTree India Earnings Fund

iShares MSCI EM ESG Optimized ETF

ProShares Short MSCI Emerging Markets

iShares MSCI Brazil ETF

iShares MSCI Brazil Small-Cap ETF

First Trust Brazil AlphaDEX Fund

First Trust Emerging Markets AlphaDEX Fund

Franklin FTSE Brazil ETF

Franklin FTSE India ETF

iShares MSCI Frontier 100 ETF

Freedom 100 Emerging Markets ETF

iShares Currency Hedged MSCI Emerging Markets ETF

iShares Core MSCI Emerging Markets ETF

Morgan Stanley India Investment Fund Inc

Columbia India Consumer ETF

iShares MSCI India ETF

Nifty India Financials ETF

Direxion Daily MSCI India Bull 2X Shares

iShares India 50 ETF

JPMorgan Emerging Markets Equity Core ETF

KraneShares MSCI All China Index ETF

KraneShares Bosera MSCI China A Share ETF

KraneShares SSE STAR Market 50 Index ETF

iShares ESG MSCI EM Leaders ETF

PIMCO RAFI Dynamic Multi-Factor Emerging Markets Equity ETF

First Trust India NIFTY 50 Equal Weight ETF

Invesco India ETF

First Trust RiverFront Dynamic Emerging Markets ETF

Hartford Multifactor Emerging Markets ETF

Schwab Emerging Markets Equity ETF

iShares MSCI India Small Cap ETF

SPDR Portfolio Emerging Markets ETF

Vanguard FTSE Emerging Markets ETF

WisdomTree Emerging Markets ex-State-Owned Enterprises Fund

Emerging markets continued to expand at a solid pace midway into the first quarter of 2024, supported by broad-based expansion across both manufacturing and service sectors.

Emerging Markets Growth Remains Solid Amid Intensifying Inflationary Pressures

Emerging Markets Funds are made up of funds that seek long-term capital appreciation. Nigeria and Emerging Markets Europe have been the two areas that have seen the highest year-to-date and May returns. With the U.S. looking to pause rate hikes, we may see inflows coming back to domestic funds.

Emerging Markets Funds See Top 10 Weekly Outflow On Record

Franklin FTSE Europe ETF

Franklin FTSE South Korea ETF

Legg Mason Low Volatility High Dividend ETF

Martin Currie Sustainable International Equity ETF

Investors have a ton on their plate this year, from inflation to rising rates to the prospect of a recession in the second half of the year.

Franklin Templeton's Mann on 2023, Smart Beta, Income

Emerging markets are all the rage right now, and by at least one metric it's easy to see why – the diversified emerging markets ETF category on YCharts returned 5.7% YTD compared to -15.9% over one year, adding $26.12 billion in YTD flows.

Emerging Markets ETF DIEM Offers Dividend Tilt

News for Franklin Emerging Market Core ETF (DIEM)