The combination of a middling Process Pillar rating and a Below Average People Pillar rating limit  Franklin Genomic Advancements ETF to 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 team managing the strategy earns a Below Average People Pillar. The strategy gets an Average Process Pillar rating.  High liquidity exposure is attributed to stocks with a high trading volume, lending managers more flexibility. And a low yield exposure is rooted in holding fewer stocks with high dividend or buyback yields -- instead, typically holding stocks in an early stage of development. 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

Medpace Holdings

Thermo Fisher Scientific

Vertex Pharmaceuticals

Regeneron Pharmaceuticals

Danaher

Eli Lilly

Krystal Biotech

Bruker

Natera

Charles River Laboratories

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 Genomic Advancements ETF earns an Average Process Pillar rating. 

The leading factor in the rating is the experience of the management team, which averages 25 years at this fund. Low expenses across its parent firm's funds, whose fees, on average, rank in the middle quintile of their respective category, also bolster the process. The pattern of low fees at the firm suggests that it is focused on delivering strong results for investors. Lastly, the process is limited by its parent firm's subpar 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 smaller, more growth-oriented companies compared with its average peer in the Health Morningstar Category. Analyzing additional factors, this strategy has held more highly liquid stocks compared to Morningstar Category Peers in the past few years. More-liquid assets are easier to buy and sell without adversely moving their prices and tend to provide some ballast during market selloffs. They also are easier to sell to meet redemptions if a host of investors decide to leave the fund in a short period of time. Different from its historical appetite, however, the strategy was less exposed to the Liquidity factor compared with Morningstar Category peers in the most recent month. The managers have also tended to underweight yield compared with peers during recent years. This is demonstrated by the portfolio's low exposure to dividends or buybacks. While companies with high yields provide steady income payments, they may cut payouts if their earnings decline. Similarly, in recent months, the strategy also had less exposure to the Yield factor than peers. In addition, this strategy has exhibited a tilt toward higher-volatility stocks in these years, meaning companies that have a higher historical standard deviation of returns compared with peers. This contributes to a higher-risk, higher-reward approach. In recent months, however, the strategy had less Volatility factor exposure 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 has allocations in its top two sectors, basic materials and technology, that are similar to the category. The sectors with low exposure compared to category peers are healthcare and industrials, with healthcare underweighting the average portfolio by 4.7 percentage points of assets and industrials similar to the average. The strategy owns 64 securities and is relatively top-heavy. Of the strategy's assets, 45.9% are concentrated within the top 10 holdings, as opposed to the category’s 38.7% average. And in closing, in terms of portfolio turnover, on a year-over-year basis, 33% of the fund's holdings have turned over, whether through increasing, decreasing, or changing a position.

Average

Process

Franklin Genomic Advancements ETF earns a Below Average People Pillar rating. The team is strengthened by the experience of the management team, which averages 25 years at this fund. However, the rating is limited by the parent firm's five-year success ratio of 37%. The measure indicates the percentage of a firm's funds that survived and beat their respective category's median return for the period. The parent's relatively low success ratio suggests that the firm could do better across its fund lineup. The small size of its portfolio management team of one also weakens the team.

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 Genomic Advancements ETF

HELX is an actively managed portfolio of global equity securities of companies relevant to genomic discovery.

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