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

 The strategy’s management team earns an Average People Pillar rating. The strategy earns an Average Process Pillar rating.  Low liquidity risk exposure is attributed to stocks with a low trading volume, limiting managers' flexibility. And low volatility exposure is rooted in stocks that have a lower 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

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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 Latin America ETF earns an Average Process Pillar rating. The largest contributor to the rating is that this fund tracks an index. Historical data, like Morningstar's Active/Passive Barometer, finds that passively managed funds have generally outperformed their active counterparts, especially over longer time horizons. Impressive risk-adjusted performance also influences the rating. This can be seen in the fund's five-year alpha calculated relative to the category average, 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 37%. 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 Latin America RIC Capped Index.  Under normal market conditions, and the fund invests at least 80% of its assets in the component securities of the index and in depositary receipts representing such securities. The index is based on the FTSE Latin America Index and is designed to measure the performance of Latin American large- and mid-capitalization stocks. The fund will concentrate its investments in a particular industry or group of industries to approximately the same extent that the index is concentrated. 

 The portfolio is overweight in consumer defensive by 5.4 percentage points in terms of assets compared with the category average, and its communication services allocation is similar to the category. The sectors with low exposure compared to category peers are energy and financial services, underweight the average by 3.5 and 2.7 percentage points of assets, respectively. The portfolio is composed of 155 holdings and invests 40.0% of assets in its top 10 holdings, similar to the category average. And finally, in terms of portfolio turnover, looking at year-over-year movements, 10% of the fund's holdings have turned over, whether through increasing, decreasing, or changing a position.

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 32 strategies, with a Bronze asset-weighted average Morningstar Medalist Rating, indicating the 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 Latin America ETF

FLLA tracks a market cap-weighted index of large- and mid-cap Latin American equities.

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The Franklin FTSE Latin America ETF is an index-based ETF that invests in the Latin America and Caribbean region of the Western Hemisphere (sort of). Investment selection is based on the FTSE Latin America RIC Capped Index. Despite the name, 90% of the assets are in two countries: Brazil and Mexico.

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News for Franklin FTSE Latin America ETF ETF (FLLA)