Weakness in Franklin Senior Loan ETF's Process and People Pillar ratings limits this strategy to a Morningstar Medalist Rating of Neutral. The portfolio maintains a sizable cost advantage over competitors, priced within the cheapest fee quintile among peers.  

 The strategy gets a Below Average Process Pillar rating. Independent of the rating, analysis of the strategy's portfolio shows it has maintained a significant overweight position in B rated bonds and an underweight in cash compared with category peers. The strategy's portfolio management team has comparable experience to other strategies in the industry. However, due to other weaknesses, the strategy earns a Below Average People Pillar rating. The strategy's parent organization earns the firm an Average Parent Pillar rating, and this rating is inherited from vehicles belonging to the same branding entity and is indirectly assigned by an analyst.

Analyst Rating

Morningstar's evaluation of this fund's process seeks to determine how repeatable, consistent, and reliable it is, and whether management maintains a competitive advantage. Franklin Senior Loan ETF earns a Below Average Process Pillar rating.    The process benefits from the fund's excellent long-term risk-adjusted performance. This can be seen in its five-year alpha calculated relative to the category average, which suggests that the managers have shown skill in their allocation of risk. However, the rating is weakened by the parent firm's five-year risk-adjusted success ratio of 37%. The measure indicates the percentage of a firm's funds that survived and outperformed 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. The parent firm's disappointing risk-adjusted performance, as shown by its average 10-year Morningstar Rating of 2.5 stars, also holds the rating back. A lower star rating suggests that the firm has struggled to outperform on a risk-adjusted basis.

 Compared with other funds in the Bank Loan Morningstar Category, this fund, historically, hews closely to peers' credit and interest-rate sensitivity over the past few years. Opening the analysis to additional factors, the portfolio has displayed biases over time, whether towards or away from certain fixed-income instruments. Compared with the average strategy in the category, the managers have been overweight B rated bonds in recent years. In the latest month, the strategy has relatively overweighted B rated bonds compared with its peers as well. Additionally, the managers have exhibited a notable sector bias away from cash over the past few years. Similarly, in recent months, the strategy also had less exposure to cash than peers. Finally, during the past few years, the fund leaned away from BB rated bonds. In recent months, the strategy also had less exposure to BB rated bonds compared to its peers.

 This strategy's 12-month yield is 8.4%, which is near its average peer. The portfolio's average surveyed credit quality is on par with peers, with both the fund and the average being rated B.

Below Average

Process

Franklin Senior Loan ETF earns a Below Average People Pillar rating. The team is supported by the size of its portfolio management team. With three portfolio managers at the helm, the fund is reasonably well-resourced. However, the rating is held back by the parent firm's five-year success ratio of 37%. The measure indicates the percentage of a firm's funds that survived and outperformed their respective category's median return for the period. The parent's modest success ratio suggests that the firm could do better across its fund lineup. Management team experience, which averages seven years at this fund, also holds the team back.

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.

Average

Parent

Franklin Senior Loan ETF

FLBL is an actively managed fund investing in USD-denominated senior loans.

Franklin Senior Loan ETF offers access to floating rate exposure and has an impressive 30-day SEC yield exceeding 8.9%. FLBL has a conservative composition with a focus on the healthcare sector and offers protection against credit risk. FLBL faces competition from other leveraged funds, but its low interest rate risk and below-average expense ratio make it an attractive choice.

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Hello, VettaFi Voices! The Wall Street Journal mentioned today that the 10-year Treasury yield is the highest it's been since 2007 as we head into another earnings season.

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Amid the prospect of higher interest rates for a longer-than-expected period, investors are flocking to bank loan ETFs.

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Senior loan funds offer investors strong, growing dividends. These funds tend to be relatively expensive too, with the exception of Franklin Senior Loan ETF. An overview of the fund follows.

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Senior loan ETFs can offer protection against rising interest rates.

An Introduction to Senior Loan ETFs

Franklin Senior Loan ETF is an exchange-traded fund that invests in floating rate leveraged loans. The fund is a fairly new addition to the Franklin Templeton platform, having IPO-ed in 2018. The fund has a 0% leverage ratio and a granular portfolio construction, with healthcare being the top sectoral exposure.

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Franklin Templeton is further cementing its status as a rising player in the exchange traded funds industry by announcing that it's changing the names of more than a dozen of its ETFs and swapping underlying indexes on several others. Those changes went into effect on August 1.

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The Federal Reserve raised interest rates by 50 basis points last week to fight record inflation, with Fed Chair Jerome H. Powell announcing that “Inflation is much too high,” and that the Federal Open Market Committee is “moving expeditiously to bring it back down.

News for Franklin Senior Loan ETF ETF (FLBL)