Franklin FTSE Europe ETF's Average Process Pillar and People Pillar ratings result in a Morningstar Medalist Rating of Neutral. The portfolio maintains a sizable cost advantage over competitors, priced within the least expensive fee quintile among peers.  

 The strategy receives an Average Process Pillar rating. Independent of the rating, analysis of the strategy's portfolio shows it has maintained a significant overweight position in yield exposure and an underweight in quality exposure compared with category peers. High yield exposure is attributed to holding more stocks with high dividend or buyback yields. And a low quality exposure is rooted in stocks with higher financial leverage and lower profitability. 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

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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 Europe ETF earns an Average Process Pillar rating. The main driver of 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 strengthens the process. 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 outperformed their respective category's median Morningstar Risk-Adjusted Return for the period. The parent's subpar 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 Developed Europe RIC Capped Index (the FTSE Developed Europe Capped Index).  Under normal market conditions, and the fund invests at least 80% of its assets in the component securities of the FTSE Developed Europe Capped Index and in depositary receipts representing such securities. The FTSE Developed Europe Capped Index is based on the FTSE Developed Europe Index and is designed to measure the performance of large- and mid-capitalization stocks from developed European countries. 

 The portfolio is overweight in healthcare by 2.8 percentage points in terms of assets compared with the category average, and its energy allocation is similar to the category. The sectors with low exposure compared to category peers are consumer cyclical and technology; however, the allocations are similar to the category. The portfolio is composed of 550 holdings and is relatively top-heavy. Of the strategy's assets, 21.7% are concentrated within the top 10 holdings, compared to the typical peer's 19.5%. And finally, in terms of portfolio turnover, this fund trades less frequently than the category’s average, potentially limiting costs to investors.

Average

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 31 strategies, with solid long-term prospects. The strategies average a Bronze asset-weighted Morningstar Medalist Rating, indicating a position 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 Europe ETF

FLEE tracks a market cap-weighted index of large- and mid-cap stocks in developed European countries.

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Slowing inflation, a cooling labour market, and lower expected corporate revenues make a peak in wage growth before the middle of next year likely. While the European Central Bank waits for clarity, this should open the door to earlier rate cuts than currently expected.

Eurozone Wage Growth Is Set To Peak Soon

Real GDP growth was minus one percent for the third quarter, while the PMI Index, a measure of economic health, has been in contractionary territory since the middle of this summer. Draghi's concerns about the Eurozone's economic prospects center on the fear that the region is falling further behind both the US and China in terms of global competitiveness.

Europe's Ongoing Malaise

Rising wages and higher incomes are boosting Europe's economic recovery, but policymakers may face challenges due to population aging and shrinking workforce. Demographics and shorter working weeks mean employers face fierce competition to find qualified workers and must pay more to retain them.

Europe's Wage Rises Are Aiding Recovery But Economies Face Risks

Eurozone growth turned negative in the third quarter and the next two quarters don't look very promising either. With inflation declining, the case for an additional rate hike is disappearing.

The Eurozone Is Flirting With Recession

Businesses report a slight tick-up in selling price expectations, but hard data still looks benign. Decline in the Economic Sentiment Indicator in October came as no surprise after the PMI had already dropped further into contraction territory.

Eurozone Economy Braces Itself For Prolonged Sluggishness

The European Central Bank increasingly seems to embrace the idea that the peak in policy rates has already been reached. After 10 consecutive hikes, the ECB's decision to leave policy rates unchanged should have been an easy one.

ECB: A Dovish Pause Now, A Peak Soon

With the exception of a brief period of growth during the opening quarter of 2023, euro area manufacturing output has decreased continuously since the middle of 2022. The downturn in new orders and the accelerated depletion of backlogs of orders prompted firms to reduce employment for the first time since January 2021.

Rising Recession Risks As Eurozone Flash PMI Falls In October, Price Pressures Ease Further

If anything, developments since the September meeting have made it even easier for the European Central Bank to pause at its next meeting. As much as the ECB has tried to keep the door to further rate hikes open since the September decision, recent developments have clearly complicated this position.

ECB Preview: The Best Moment To Pause

Tighter monetary policy is starting to work. Alternatives would be more costly. So far, so good. These words are probably a fair assessment of Europe's progress thus far in its struggle against inflation.

Europe Must Succeed In Restoring Price Stability

Eurozone business activity remained in contraction at the end of the third quarter of the year, as an increased rate of loss of orders led to a further decline in activity. The overall reduction in output was again led by manufacturing, but the service sector saw activity decrease for the second month running.

Eurozone Flash PMI Fuels Further Downturn Worries As Demand Weakness Intensifies

The ECB just announced its tenth consecutive policy rate hike since July last year, hiking all interest rates by 25bp. Higher inflation and inflation forecasts look like the main drivers of the hike.

ECB Announces Final Rate Hike

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Markets are torn. Will the ECB hike this week or not?

ECB Cheat Sheet: Is A Hike Hawkish Enough?

Inflation in the eurozone did not fall in August, which could tip the ECB in favour of a final 25bp hike at the governing council meeting in two weeks' time. Still, overall inflation dynamics remain relatively benign, and we still expect inflation to trend much lower at the end of the year.

Eurozone Inflation Stagnates Ahead Of ECB September Meeting

Eurozone business activity contracted at an accelerating pace in August, according to the latest flash PMI survey data. The overall rate of input cost inflation and selling prices remained indicative of consumer price inflation running at an annual rate of 3% in the coming months.

Eurozone Downturn Deepens According To Flash PMI But Inflation Pressures Tick Higher

Another weak PMI for the eurozone confirms a sluggish economy with recession as a downside risk. Inflation pressures for services remain stubborn as wage pressures continue to be a concern.

Eurozone PMI Paints Worrisome Growth Picture

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As the ECB has been putting increasing emphasis on the recent readings of underlying inflation, it is more important to look at the short-term dynamics than at the year-on-year figures. While some easing of inflationary tensions is indeed observable, it would be premature to exclude another rate hike.

The 'Real' Dynamics Of Core Inflation In The Eurozone

Franklin FTSE Europe Hedged ETF

The CPI for services spiked by 5.6% in July, compared to a year ago, up from 5.4% in June and 5.0% in May, another record in the data going back to 1997, according to Eurostat today. “Core” CPI (without food and energy products that consumers buy) remained at 5.5% in July, same as in June, and up from 5.3% in May.

Runaway Services Inflation In Euro Area Spikes To Record. Core CPI Stays Near Record

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The seasonally adjusted HCOB Flash Eurozone Composite PMI Output Index, based on approximately 85% of usual survey responses, dropped from 49.9 in June to 48.9 in July, its lowest since last November. The dearth of new orders meant backlogs of work fell at an increased rate as companies often relied on previously placed orders to support current operating levels.

Eurozone Flash PMI Signals Cooling Inflation Amid Rising Recession Risks

Higher interest rates soon would prevent more economic pain later. The European Central Bank could prevent inflation expectations from becoming unmoored and drifting upwards by continuing to raise its policy rate.

Europe Should Tighten Monetary Policy Further

The European Central Bank looks set to hike rates by 25bp on Thursday. With the bleak economic outlook and disinflation gaining traction, however, the end to rate hikes is near.

ECB Preview: The Final Countdown

The latest data show that eurozone growth is not picking up, with services now also losing steam. While it's not all downhill from here, subdued growth is the best we can hope for.

A Languishing Eurozone Economy

Industrial production growth in Europe has more or less stagnated since late 2020 as the speedy recovery that followed the first round of lockdowns came to a halt. At the same time, the sector is in an incredible state of flux; structural changes around energy and trade are providing substantial challenges for businesses.

Europe's Industry Outlook: We're Still Riding The Energy And Pandemic Shockwaves

Rising corporate profits account for almost half the increase in Europe's inflation over the past two years, as companies increased prices by more than spiking costs of imported energy. Europe's businesses have so far been shielded more than workers from the adverse cost shock.

Europe's Inflation Outlook Depends On How Corporate Profits Absorb Wage Gains

Eurozone business output growth came close to stalling in June, according to the latest HCOB flash PMI survey data produced by S&P Global, pointing to renewed weakness in the economy after the brief growth revival recorded in the spring. Backlogs of work fell at the steepest rate for seven months, reflecting the sustained (albeit moderating) output growth at a time of falling inflows of new work.

Eurozone Flash PMI Shows Inflation Pressures Cooling In June As Economic Upturn Fades

The European Central Bank raised its key rate by 25 basis points as expected, but startled investors with its outlook. The European Central Bank decisions last week were in line with market expectations.

News for Franklin FTSE Europe ETF ETF (FLEE)