Franklin Templeton (
has long been one of the kings of the mutual fund world. The
company has over 200 funds, including several with more than $5
billion in assets under management.
However, like many mutual fund companies lately, Franklin Templeton
is slowly making its way into the ETF world as well. While others
have beaten the California-based company to the finish line for new
ETFs, Templeton is in the process of catching up, as evidenced by
its recent debut of its first exchange-traded fund, the
Franklin Short Duration U.S. Government ETF (FTSD)
This new product will have an actively managed strategy, and will
focus on short term bonds for its exposure. And for those intrigued
by the Templeton approach and its application in ETF form, we have
highlighted some of the key details regarding this new fund below:
FTSD in Focus
The fund looks to invest at least 80% of its net assets in
securities issued or guaranteed by the US government, its agencies,
or instrumentalities, including government-sponsored entities. This
includes treasury bonds, mortgage-backed securities, and even
inflation-indexed securities-such as TIPS-- as well (see
3 Bond ETFs Popular in the No Taper Aftermath
The target duration for the fund looks to be three years or less,
keeping the interest rate risk low. And since the fund focuses on
government securities, default risk is pretty much non-existent,
though there is always a modest inflation risk to consider.
However, this focus on low risk, low duration securities could keep
the yield at a minimum, suggesting that investors looking for big
payouts might want to go elsewhere. Fortunately the fund is a low
cost product though, as its net expense ratio comes in at 30 basis
points a year (the gross expense ratio is 43 basis points).
"This actively managed ETF can take advantage of opportunities
outside of the index (Barclays U.S. Government 1-3 Year Index),
which has a much narrower opportunity set," said the fund's lead
Roger Bayston, CFA
, in a press release. "The fund may be attractive to risk-averse
investors who seek monthly income potential and relative price
stability across changing interest rate environments, and do not
want exposure to corporate credit cycles."
This move by Franklin Templeton continues the recent trend that
investors have seen of large mutual fund companies dipping their
toes into the ETF world. The move into the short-duration market
has also been a popular one, as this is now a pretty crowded space
Medium Term Treasury Bond ETF Investing 101
In fact, there are nearly four dozen other ETFs in the U.S.
government bond space, including a few actively managed funds. In
this market, products like the
Guggenheim Enhanced Short Duration Bond ETF (
SPDR SSgA Multi-Asset Real Return ETF (
have attracted a decent following and could pose a threat to
Franklin Templeton's new fund.
Particularly GSY could be a tough foe to battle, as the fund has
close to half a billion in assets, and its expense ratio comes in
at just 27 basis points. However, it does focus on extremely
short-term securities, so it might not be the perfect competitor
all the ultra-short term bond ETFs here
Either way, the latest move by another mutual fund giant does
suggest that more companies are starting to see the potential in
the ETF world. And with Franklin Templeton's huge following and
asset base, there is plenty of reason to believe that this new
product can compete in a tough market and attract a decent
following of its own.
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