Neither people nor process stand out at Franklin FTSE Brazil ETF, but it gets enough right to help this strategy retain its Morningstar Medalist Rating of Bronze. The portfolio maintains a sizable cost advantage over competitors, priced within the least expensive fee quintile among peers.  

 The strategy’s management team earns an Average People Pillar rating. The strategy earns an Average Process Pillar rating. Independent of the rating, analysis of the strategy's portfolio shows it has maintained an overweight liquidity exposure and volatility exposure compared with category peers. High liquidity exposure is attributed to stocks with a high trading volume, lending managers more flexibility. And high volatility exposure is rooted in stocks that have a higher standard deviation of returns. 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

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 FTSE Brazil ETF earns an Average Process Pillar rating. The most notable contributor to the rating is that this fund tracks an index. Historical data, such as Morningstar's Active/Passive Barometer, finds that passively managed funds have generally outperformed their active counterparts, especially over longer time horizons. Respectable risk-adjusted performance also influences the rating. This can be seen in the fund's five-year alpha calculated relative to the category index, which suggests that the process was successful over that period. Lastly, the process is limited by the parent firm's five-year risk-adjusted success ratio of 33%. 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.

The investment strategy as stated in the fund's prospectus is:  The investment seeks to provide investment results that closely correspond, before fees and expenses, to the performance of the FTSE Brazil RIC Capped Index (the FTSE Brazil Capped Index).  Under normal market conditions, and the fund invests at least 80% of its assets in the component securities of the FTSE Brazil Capped Index and in depositary receipts representing such securities. The FTSE Brazil Capped Index is based on the FTSE Brazil Index and is designed to measure the performance of Brazilian large- and mid-capitalization stocks. The fund is non-diversified. 

 The portfolio is overweight in energy and utilities relative to the category average by 3.9 and 2.9 percentage points, respectively. The sectors with low exposure compared to category peers are consumer defensive and financial services, with consumer defensive underweighting the average portfolio by 2.7 percentage points of assets and financial services similar to the average. The portfolio is positioned across 88 holdings and is quite concentrated. In particular, 53.6% of the strategy's assets are housed within the top 10 holdings, compared to the category average of 41.2%. And finally, in terms of portfolio turnover, this fund trades more frequently than its average peer, potentially racking up additional expenses for investors and creating a drag on performance.

Average

Process

Franklin Templeton’s  team is comparable to peers, resulting in 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 31 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.

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 FTSE Brazil ETF

FLBR tracks a market cap-weighted index of Brazilian large- and mid-cap stocks.

Franklin FTSE Brazil closely mirrors the performance of the FTSE Brazil Capped Index, making it an attractive option for investors seeking RIC concentration requirements. FLBR is concentrated in the finance, energy minerals, and non-energy minerals sectors, with notable holdings in major Brazilian banks and companies like Vale and Petrobras. Macroeconomic indicators, fiscal concerns, tax revenue trends, and commodity prices shape FLBR's future outlook, prompting cautious optimism amid risks.

FLBR: Mixed Indicators, Cheap Brazilian Equities, Opportunities Ahead

The Franklin FTSE Brazil ETF invests across the most important Brazilian companies. We highlight key advantages of FLBR compared to the larger iShares MSCI Brazil ETF including a lower expense ratio and historical outperformance. Improving macro data out of Brazil supports a positive outlook for Brazil stocks.

FLBR: Low-Cost Exposure To Brazil Stocks

Brazil's key economic indicators are now moving in the right direction. A sooner-than-expected policy pivot may be on the horizon. The heavily discounted Franklin FTSE Brazil ETF is poised to benefit.

FLBR: Time To Look At Brazil Again Ahead Of A Likely Monetary Policy Pivot

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As the second-quarter draws to a close, Wall Street and global markets, must be interested in knowing which country ETFs won in the second quarter.

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The Brazilian economy avoided entering a technical recession in the opening quarter of 2023, with a growth rate of 1.9% largely beating market expectations. PMI data up to May so far point to sustained growth for the second quarter, albeit with notable sector divergence.

Uneven Impact Of High Interest Rates: Brazil Manufacturing Struggles While Service Thrives

Annual inflation in Brazil reached 4.7% in March, the lowest since January 2021, as the impact of external shocks continues to vanish. Brazil's inflationary environment remains under pressure.

Brazil's Inflation Falls And There May Be Room For Easing Monetary Policy This Year

FLBR: Fiscal Issues Remain The Key Overhang On Brazilian Equities.

FLBR: Fiscal Issues Remain The Key Overhang On Brazilian Equities

In the fog of domestic political and fiscal uncertainty, investors may still find Brazil equities poised to benefit from structural growth trends within their industries. We believe the tide is turning for Brazil equities, and high-quality companies could benefit the most.

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The MSCI Latin America Index has performed better than the MSCI Emerging Market Index cumulatively over the past 5 and 7 years as well as over longer time periods, buoyed by its natural resource companies. The region is well placed to take advantage of the opportunities created by the renewable energy revolution with 54% of global lithium reserves concentrated there.

Investment Opportunities In Latin America

The Franklin FTSE Brazil ETF offers US investors a low-cost vehicle to access Brazilian equities. Given the market cap-weighted index it tracks is heavy on mining and O&G, as well as SOEs, the ETF is highly exposed to policy risks from the new administration.

Franklin FTSE Brazil ETF: A Bumpy Ride Ahead

Water scarcity in Latin America is likely to intensify supply chain and operational disruptions, regulatory risks, and economic losses for businesses during the next five years. In Brazil, hydropower accounts for 65% of the electricity matrix.

Water Scarcity In Latin America: Operational Challenges

FLBR's volatility has been high of late but could come down now given the election results. Lula's spending ambitions could restimulate inflationary pressures but for now, things appear in good shape.

Franklin FTSE Brazil ETF: Post-Election Bull-Case Looks Solid

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Central banks across emerging markets have reacted to elevated inflation by significantly tightening monetary policy, in some cases, well ahead of the U.S. Federal Reserve and the European Central Bank. After largely synchronized rate-hiking cycles across EM, monetary policies could once again begin to diverge among individual countries.

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Stocks, currency rally amid a return of political stability.

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Brazil held its run-off presidential election this past weekend, with President Jair Bolsonaro losing a close and hotly contested election to former President Luiz Inacio Lula da Silva, known as Lula.

Election Bump for Brazil ETFs? Watch FLBR

Lula claims third term as president, narrowly defeating incumbent Jair Bolsonaro. Political divides remain deep, but the government appears balanced by a newly elected pro-market Congress.

Lula Returns To Helm Of World's 12th Largest Economy: 'Brazil Is Back'

Brazil's newly elected president, Luiz Inácio Lula da Silva will have to walk a narrow path of expenditures given the budget constraints.

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Brazil's Bovespa stock index has gained 10% this year, while the S&P 500 is down 25%.

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The first-round outcome is likely to buoy Bolsonaro, whose showing was better than polling had indicated. Lula has not specified how he would reduce Brazil's large current structural fiscal deficit or contain the expansion in public debt (78% of GDP).

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Brazilians remain polarized following this past weekend's inconclusive presidential election. While many analysts expect Lula to maintain the surprisingly narrow lead he garnered for the upcoming runoff vote, markets may remain rocky even under the assumption that a Lula win has largely been priced in.

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Despite a positive start early on, stock and bond markets ended August deep in the red. The search for best ETFs is on.

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Economies of Latin America and Caribbean have continued their strong post-pandemic rebound, but the winds are shifting as global financial conditions are tightening and commodity prices are reversing their upward trend, while inflationary pressures persist. The reopening of contact-intensive sectors, especially hospitality and travel, the unwinding of pandemic pent-up demand, and still favorable external financial conditions supported a solid expansion in the first half of the year, allowing services to catch up with manufacturing, and employment to reach pre-pandemic levels.

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ETF Trends' CEO Tom Lydon discusses the Franklin FTSE Brazil ETF (FLBR) on this week's ETF of the Week podcast with Chuck Jaffe of the MoneyLife Show. Lydon opens by explaining the economic turnaround that Brazil has managed in the last year, recovering from poor economic and stock market performance to strong growth.

ETF of the Week: Franklin FTSE Brazil ETF (FLBR)

Brazil is seeing an uptick in consumer spending, according to the latest figures from the Brazilian Institute of Geography and Statistics (IBGE). Per the government agency, retail sales in Brazil rose 1.1% in February from January, beating analyst expectations.

Brazil Sees Uptick in Retail Sales, Beating Analyst Estimates

Franklin FTSE Brazil ETF (FLBR) offers the cheapest route for those interested in Brazilian equities.

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