The combination of an Average People Pillar rating and a Below Average Process Pillar rating limit  Franklin Income Focus ETF to a Morningstar Medalist Rating of Neutral.  The portfolio maintains a sizable cost advantage over competitors, priced within the lowest fee quintile among peers.  

 The strategy receives a Below Average Process Pillar rating. Independent of the rating, analysis of the strategy's portfolio shows it has maintained a significant underweight position in the Japan region and the communication services sector compared with category peers. 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

Chevron

JPMorgan Chase & Co

Royal Bank of Canada

Johnson & Johnson

Duke Energy

Procter & Gamble

Wells Fargo

Texas Instruments

Southern Company

Morningstar's evaluation of this fund's process aims to determine how repeatable, consistent, and reliable it is, and whether management maintains a competitive advantage. Franklin Income Focus ETF earns a Below Average Process Pillar rating. The process is bolstered by an adequate team size, with more than one manager at the helm. However, the rating is held back 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. The parent firm's five-year risk-adjusted success ratio of 37% also holds the process back. 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 relatively low success ratio suggests that the firm could do better across its fund lineup.

This strategy has an equity position similar to Moderately Conservative Allocation peers but holds more assets in fixed income, with a 29% to 58% equity to fixed-income composition. Its equity sleeve is consistently tilted toward both smaller market-cap and value-oriented stocks compared with category peers. The strategy has three region or sector biases compared to category peers. The most meaningful is its consistent underweight in the Japan region. Additionally, the portfolio has maintained an underweight bias to the communication services sector. And finally, in the fund's most recent portfolio, more assets were allocated to developed markets regions. Although, this bias has not existed over time. 

 The portfolio is overweight in utilities and consumer defensive relative to the category average by 9.1 and 7.2 percentage points, respectively. The sectors with low exposure compared to category peers are technology and real estate, underweight the average by 9.4 and 5.6 percentage points of assets, respectively. The portfolio is overweight in Developed Europe by 6.4 percentage points compared with the category average, and North America's allocation is similar to its peers. The regions with low exposure compared to their category peers are Japan and Developed Asia, with Japan underweight the average by 2.7 percentage points and Developed Asia similar to the average.

Below Average

Process

Franklin Income Focus ETF earns an Average People Pillar rating. Edward D. Perks, the longest-tenured manager on the strategy, boasts over 25 years of listed portfolio management experience. The average Morningstar Rating of the strategies they currently manage is 2.9 stars, indicating that their risk-adjusted returns have been in line with the category average. Edward D. Perks has an experienced backdrop of support. The three listed managers boast 14 years of average listed portfolio management experience. As a team, they manage 10 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. The longest-tenured manager of the fund also manages a different product rated by an analyst. Their analyst-assigned People Pillar rating is combined here with the People scores (algorithmic or analyst-assigned) for the fund’s other managers on a tenure-weighted basis.

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 Income Focus ETF

INCM actively manages a diversified portfolio of equities and debt securities. The fund seeks to maximize income over a full market cycle by utilizing income generation strategies and investing opportunistically across various assets classes, markets, and sectors.

Franklin Income Focus ETF offers a flexible and active 60/40 portfolio allocation, with a blend benchmark of the S&P 500 Index and the Bloomberg US Aggregate Index. INCM has a composition that reflects a realistic allocation for retail investors, with a focus on fixed-income and high-yield bonds. The 'Fixed Income' bucket currently sits at 60.8%. On the equity side, the highest allocation is to information technology, followed by financials and consumer staples. The trailing P/E for the equities sleeve is 17x.

INCM: Active 60/40 Allocation From Franklin Templeton

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