The combination of a middling Process Pillar rating and a Below Average People Pillar rating limit  Franklin Municipal Green Bond ETF to a Morningstar Medalist Rating of Neutral.  The portfolio maintains a cost advantage over competitors, priced within the cheapest fee quintile among peers.  

 The management team doesn't personally invest much alongside shareholders. This is a large contributor to the strategy's Below Average People Pillar. The strategy earns an Average Process Pillar rating. Independent of the rating, analysis of the strategy's portfolio shows it has maintained an underweight position in A rated bonds and has a considerable overweight in debt with 10- to 15-year maturities compared with category peers. 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 understand management's investment philosophy, and whether it has been applied consistently over time and can add value across the market cycle. Franklin Municipal Green Bond ETF earns an Average Process Pillar rating.    The most important driver of the rating is the experience of the management team, which averages 26 years at this fund. Impressive 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 managers have shown skill in their allocation of risk. 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 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.

 Compared with other funds in the Muni National Long Morningstar Category, this fund, historically, hews closely to peers' credit and interest-rate sensitivity 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 category average, the managers have been 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, there's been a notable bias towards debt with 10- to 15-year maturities over the past few years. Compared with category peers, the strategy had more exposure to debt with 10- to 15-year maturities in the most recent month. Finally, during the past few years, the fund leaned towards municipal bonds. In this month, the strategy also leaned more towards municipal bonds compared with its peers.

 This strategy's 12-month yield is 3.6%, higher than its average peer's 3.3%. Typically, higher yields come at the cost of higher credit risk. The portfolio has a lower average credit rating of BBB, compared with the category average's A and it holds no non-investment-grade assets, despite the average peers' 2%. 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 Municipal Green Bond ETF earns a Below Average People Pillar rating. The team benefits from the experience of the management team, which averages 26 years at this fund. However, the rating is weakened by the parent firm's five-year success ratio of 37%. The measure indicates the percentage of a firm's funds that survived and outperformed their respective category's median return for the period. The parent's subpar success ratio suggests that the firm could do better across its fund lineup. A high expense ratio, with fees ranking in its category's most expensive quintile, also weakens the team. A higher expense ratio reduces net returns and decreases the team's odds of success.

Below 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 Municipal Green Bond ETF

FLMB is an actively managed fund that invests primarily in investment-grade municipal bonds, with a broad range in maturities, that intend to finance projects promoting environmental sustainability.

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Bond investors can utilize actively managed municipal bond exchange traded funds to  seek out the best opportunities and exploit inefficiencies in the complex muni market. In the recent webcast, Exploiting Inefficiencies in the Muni Market with Active Management, James Conn, senior vice president and portfolio manager for Franklin Templeton, noted that the municipal bond market [.

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Franklin Templeton has changed the name, investment objective, and principal strategies of the Franklin Liberty Municipal Bond ETF (NYSE Arca: FLMB). Effective May 3, the fund was renamed the Franklin Municipal Green Bond ETF, and under normal market conditions, it will invest at least 80% of its net assets in municipal green bonds.

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