Franklin International Aggregate Bd ETF's Average Process Pillar and People Pillar ratings result in a Morningstar Medalist Rating of Neutral. The portfolio maintains a cost advantage over competitors, priced within the second-cheapest 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 underweight position in corporate bonds and an overweight in A rated bonds compared with category peers. This management team has a wealth of experience, but still gets an 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 International Aggregate Bd ETF earns an Average Process Pillar rating.    The main contributor to the rating is the size of its portfolio management team. With four portfolio managers at the helm, the fund is reasonably well-resourced. Management team experience, which averages 21 years at this fund, also strengthens the process. Lastly, the process is limited by its parent firm's inferior risk-adjusted performance, as shown by the firm's average 10-year Morningstar Rating of 2.5 stars. A lower star rating suggests that the firm has struggled to outperform on a risk-adjusted basis.

 Compared with other funds in the Global Bond-USD Hedged Morningstar Category, this fund takes on higher credit risk. But in terms of long-term interest-rate sensitivity, it hews closely to its average peer 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 substantially underweight corporate bonds in recent years. In the latest month, the strategy has also relatively underweighted corporate bonds compared with Morningstar Category peers. Additionally, there's been a notable overallocation to A rated bonds over the past few years. Compared with category peers, the strategy had more exposure to A rated bonds in the most recent month. Finally, during the past few years, the fund leaned away from debt with 20- to 30-year maturities. In this month, however, the strategy leaned more towards  than its peers.

 This strategy's 12-month yield is 0.9%, lower than its average peers' 2.9%. While a lower yield may deliver less income, it also tends to indicate lower credit risk. But that isn't always the case. Over the past 12 months, the average yield of the fund has been lower than the average yield of its Morningstar Category peers. The portfolio has a lower average credit rating of BBB, compared with the typical peers' AA and it holds no non-investment-grade assets, despite the average peers' 5%. Strategies that take on more credit risk tend to be at their best when markets are as well. This risk contributes to strong performance during bull markets at the cost of losing more on the downside.

Average

Process

Franklin International Aggregate Bd ETF earns an Average People Pillar rating. John W. Beck, the longest-tenured manager on the strategy, provides strong guidance, offering over 25 years of listed portfolio management experience. The average Morningstar Rating of the strategies they manage is 3.5 stars, demonstrating above-average risk-adjusted performance relative to category peers. John W. Beck is supported by an experienced team, being able to draw on three additional listed managers, who average 21 years of listed portfolio management experience. As a team, they manage four investment vehicles together, with mixed prospects. The asset-weighted average Morningstar Medalist Rating across the strategies is Neutral. This means, in aggregate, they are not positioned to deliver positive alpha. None of the managers here invest any money in the strategy, which is disappointing, as such investments help align managers' interests with fundholders.

 Note: The People Pillar rating is indirectly assigned by an analyst. At least one of the managers on this fund manages a different product rated by an analyst. The analyst-assigned People Pillar rating(s) for these managers are combined with algorithmic scores for any non-covered managers on a tenure-weighted basis.

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 International Aggregate Bond ETF

FLIA is an actively managed fund that invests in government, agency, and corporate debt outside of the United States.

The Franklin International Aggregate Bond ETF has a poor historical total return profile, with a negative 1.71% return since inception. The fund's hedged nature and exposure to low-yielding government bonds from various jurisdictions contribute to its underwhelming performance. Going forward, investors should expect a maximum 3% annual return, making the fund unattractive compared to US treasuries yielding 5%.

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With a month and a half of 2023 in the books, it's clear that fixed income is front and center.

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