The combination of an Average People Pillar rating and a Below Average Process Pillar rating limit  Franklin U.S. Core Bond ETF 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 receives a Below Average Process Pillar rating. Independent of the rating, analysis of the strategy's portfolio shows it has maintained a significant underweight position in A rated bonds and an overweight in government bonds compared with category peers. 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

Morningstar's evaluation of this fund's process seeks to understand management's investment philosophy, and whether it has been applied consistently over time and can add value across the market cycle. Franklin U.S. Core Bond ETF earns a Below Average Process Pillar rating.    The process benefits from its level of diversification across individual securities, with its top 10 holdings accounting for 26% of assets. However, the rating is limited 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 relatively low success ratio suggests that the firm could do better across its fund lineup. The parent firm's subpar risk-adjusted performance, as shown by its average 10-year Morningstar Rating of 2.5 stars, also limits the process. A lower star rating suggests that the firm has struggled to outperform on a risk-adjusted basis.

 Compared with other funds in the Intermediate Core Bond Morningstar Category, this fund has been consistently sensitive to interest-rate changes 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. Relative to the average strategy in the category, the managers have been meaningfully underweight A rated bonds in recent years. In the latest month, the strategy has also relatively underweighted A rated bonds compared with Morningstar Category peers. Additionally, the fund has exhibited a sector bias towards government bonds over the past few years. Compared with category peers, the strategy had more exposure to government bonds in the most recent month. Finally, during the past few years, the fund leaned towards debt with one- to three-year maturities. In this month, the strategy also leaned more towards debt with one- to three-year maturities compared with its peers.

 This strategy's 12-month yield is 3.5%, which mirrors its average peer. The portfolio's average surveyed credit quality is on par with peers, with both the fund and the average being rated A.

Below Average

Process

Franklin U.S. Core Bond ETF earns an Average People Pillar rating. The team is backed by Patrick Klein, the longest-tenured manager on the strategy, who brings 14 years of listed portfolio management experience. The average Morningstar Rating of the strategies they currently manage is 3.1 stars, demonstrating average risk-adjusted performance. Patrick Klein draws on only two other listed supporting managers. Although, together they are adequately equipped, with nine years of average listed portfolio management experience.  The fund has had about average portfolio manager turnover compared to other teams. Long-term stability strengthens a team's rating as it tends to support positive results. However, the most recent documented departure was 16 months ago. None of the portfolio managers here invest in this fund. This hurts the rating because manager investment would align their interests with the strategy's investors.

 Note: The People Pillar rating is indirectly assigned by an analyst. The longest-tenured manager of the fund also manages a different product rated by an analyst. Their analyst-assigned People Pillar rating is combined here with the People scores (algorithmic or analyst-assigned) for the fund’s other managers on a tenure-weighted basis.

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 Liberty U.S. Core Bond ETF

FLCB is an actively-managed fund that holds US investment-grade bonds, including Treasurys, MBS and investment-grade corporate bonds. Managers aim for similar risk traits to the Bloomberg U.S. Aggregate Bond Index.

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