Franklin US Mid Cap Mltfctr Idx ETF’s management team is rated Average, but a solid investment process still helps this strategy retain its Morningstar Medalist Rating of Silver. The portfolio maintains a sizable cost advantage over competitors, priced within the lowest fee quintile among peers.  

 The strategy's investment process inspires confidence and earns an Above Average Process Pillar rating. Independent of the rating, analysis of the strategy's portfolio shows it has maintained a significant overweight position in quality exposure and an underweight in volatility exposure compared with category peers. A high quality exposure means holding stocks that are consistently profitable, growing, and have solid balance sheets. And low volatility exposure is rooted in stocks that have a lower standard deviation of returns. 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

Diamondback Energy

Trane Technologies plc

Kroger

Allstate

Discover

Phillips 66

Tractor Supply

Ferguson PLC

W.W. Grainger

Cintas

Morningstar's evaluation of this security's process aims to determine the likelihood that it will outperform its Morningstar Category benchmark on a risk-adjusted basis over the long term. Franklin US Mid Cap Mltfctr Idx ETF earns an Above Average Process Pillar rating. 

The most important driver of the rating is the fund's impressive long-term risk-adjusted performance. This can be seen in its five-year alpha calculated relative to the category average, which suggests that the managers have shown skill in their allocation of risk. This fund tracks an index, which also increases its process rating. Historical data, such as Morningstar's Active/Passive Barometer, shows that passively managed funds have generally outperformed their active counterparts, especially over longer time horizons. Lastly, the process is limited by its parent firm's disappointing 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.

 This strategy leans toward larger, deeper value companies compared with its average peer in the Mid-Cap Blend Morningstar Category. Examining additional factor exposure, this strategy has consistently had a defensive tilt owing to its exposure to high-quality stocks over the past few years. Though it may trail peers during an economic boom, this orientation contributes to helping it weather periods of economic stress better. In recent months, the strategy was more exposed to the Quality factor compared with its Morningstar Category peers as well. This strategy has also exhibited a tilt toward low-volatility stocks in recent years, meaning companies with a lower historical standard deviation of returns. Such holdings can limit a strategy's downside, but cause it to lag in bull markets. Similarly, in recent months, the strategy also had less exposure to the Volatility factor than peers. Additionally, this strategy's portfolio has held more stocks with high dividend or buyback yields than peers over recent years. High-yield stocks tend to be associated with more mature, profitable businesses that can grow as well as provide a stream of income. Such stocks could suffer, however, if setbacks force them to cut their dividends. In this month, the strategy also had more exposure to the Yield factor over its peers. More information on a fund and its respective category's factor exposure can be found in the Factor Profile module within the Portfolio section. 

 The portfolio is overweight in consumer cyclical and industrials relative to the category average by 5.3 and 2.8 percentage points, respectively. The sectors with low exposure compared to category peers are financial services and technology, with financial services underweighting the average portfolio by 3.4 percentage points of assets and technology similar to the average. The portfolio is composed of 207 holdings and its assets are more dispersed than the typical peer in the category. In the most recent disclosure, 10.8% of the portfolio's assets were concentrated in the top 10 fund holdings, compared to the category’s 15.4% average. And in closing, in terms of portfolio turnover, looking at year-over-year movements, 24% of the fund's holdings have changed, whether through increasing, decreasing, or changing a position.

Above Average

Process

Franklin Templeton’s team is good but unexceptional, earning the strategy 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, demonstrating their 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.

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 U.S. Mid Cap Multifactor Index ETF

FLQM tracks a US-listed mid-cap equity index that selects and weights constituents based on four factors: quality, value, momentum, and volatility.

FLQM is a smart beta vehicle mixing quality, value, momentum, and low volatility factors in a portfolio consisting of the worthiest Russell Midcap index constituents. FLQM offers a well-calibrated take on passive multifactor investing. It delivers on quality, value, momentum, and low volatility fronts, representing a leaner, more potent version of IWR with solid returns. However, there are a few nuances that welcome a more skeptical view, including the size factor, soft growth characteristics, and the inability to beat the market consistently in the past.

FLQM: A Multifactor ETF With Numerous Nuances

Making its debut on 04/26/2017, smart beta exchange traded fund Franklin U.S. Mid Cap Multifactor Index ETF (FLQM) provides investors broad exposure to the Style Box - Mid Cap Blend category of the market.

Is Franklin U.S. Mid Cap Multifactor Index ETF (FLQM) a Strong ETF Right Now?

Designed to provide broad exposure to the Mid Cap Blend segment of the US equity market, the Franklin U.S. Mid Cap Multifactor Index ETF (FLQM) is a passively managed exchange traded fund launched on 04/26/2017.

Should Franklin U.S. Mid Cap Multifactor Index ETF (FLQM) Be on Your Investing Radar?

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US equities, as measured by the S&P 500 Index, have performed strongly so far in 2023.

Why Now For U.S. Equity Income?

FLQM is a smart-beta ETF that aims to deliver better risk-adjusted returns with lower volatility than the Russell Midcap Index. It uses a multi-factor selection model to select stocks with favorable exposure to quality, value, momentum, and low volatility factors. The fund has outperformed its competitors and has shown superior risk-adjusted returns, making it a good option for mid-cap exposure.

FLQM: An Efficient Smart-Beta Approach To Mid-Cap

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Franklin Templeton has been building out its ETF lineup through product development, mutual fund conversions, and acquisitions. While it had $10 billion in U.S.-listed ETF assets at the end of November, aided by $1 billion of net inflows, the firm has ambitions of being a much larger player in the space.

Meet an ETF Provider: Franklin Templeton

With big questions about 2023 still looming for investors, investment cases abound for all sorts of approaches, from going all in on dividends to embracing a soft-landing tech rebound.

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Franklin Templeton is further cementing its status as a rising player in the exchange traded funds industry by announcing that it's changing the names of more than a dozen of its ETFs and swapping underlying indexes on several others. Those changes went into effect on August 1.

Franklin Templeton Alters Names, Swaps Indexes on Slew of ETFs

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The Mid Cap Growth style ranks eleventh in Q4'20. Based on an aggregation of ratings of 12 ETFs and 380 mutual funds in the Mid Cap Growth style.

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News for Franklin U.S. Mid Cap Multifactor Index ETF ETF (FLQM)