Making its debut on 04/26/2017, smart beta exchange traded fund Franklin LibertyQ U.S. Equity ETF (FLQL) provides investors broad exposure to the Large Cap ETFs category of the market.
What Are Smart Beta ETFs?
The ETF industry has long been dominated by products based on market cap weighted indexes, a strategy created to reflect the market or a particular market segment.
Market cap weighted indexes offer a low-cost, convenient, and transparent way of replicating market returns, and are a good option for investors who believe in market efficiency.
There are some investors, though, who think it's possible to beat the market with great stock selection; this group likely invests in another class of funds known as smart beta, which track non-cap weighted strategies.
Non-cap weighted indexes try to choose stocks that have a better chance of risk-return performance, which is based on specific fundamental characteristics, or a mix of other such characteristics.
The smart beta space gives investors many different choices, from equal-weighting, one of the simplest strategies, to more complicated ones like fundamental and volatility/momentum based weighting. However, not all of these methodologies have been able to deliver remarkable returns.
Fund Sponsor & Index
Managed by Franklin Templeton Investments, FLQL has amassed assets over $380.81 M, making it one of the average sized ETFs in the Large Cap ETFs. This particular fund, before fees and expenses, seeks to match the performance of the LibertyQ US Large Cap Equity Index.
The U.S. Large Cap Underlying Index seeks to achieve a lower level of risk and higher risk-adjusted performance than the Russell 1000 Index over the long term by applying a multi-factor selection process, which is designed to select equity securities from the Russell 1000 Index that have favorable exposure to four investment style factors quality, value, momentum and low volatility.
Cost & Other Expenses
Cost is an important factor in selecting the right ETF, and cheaper funds can significantly outperform their more expensive cousins if all other fundamentals are the same.
Operating expenses on an annual basis are 0.25% for this ETF, which makes it on par with most peer products in the space.
It has a 12-month trailing dividend yield of 1.55%.
Sector Exposure and Top Holdings
Most ETFs are very transparent products, and disclose their holdings on a daily basis. ETFs also offer diversified exposure, which minimizes single stock risk, though it's still important for investors to research a fund's holdings.
FLQL's heaviest allocation is in the Information Technology sector, which is about 21.10% of the portfolio. Its Consumer Discretionary and Healthcare round out the top three.
When you look at individual holdings, At+t Inc (T) accounts for about 1.22% of the fund's total assets, followed by Eli Lilly + Co (LLY) and Cvs Health Corp (CVS).
Its top 10 holdings account for approximately 11.33% of FLQL's total assets under management.
Performance and Risk
So far this year, FLQL has added roughly 8.11%, and is up about 16.32% in the last one year (as of 10/08/2018). During this past 52-week period, the fund has traded between $27.03 and $31.54.
The ETF has a beta of 0.76 and standard deviation of 9.69% for the trailing three-year period. With about 250 holdings, it effectively diversifies company-specific risk.
Franklin LibertyQ U.S. Equity ETF is a reasonable option for investors seeking to outperform the Large Cap ETFs segment of the market. However, there are other ETFs in the space which investors could consider.
IShares Core S&P 500 ETF (IVV) tracks S&P 500 Index and the SPDR S&P 500 ETF (SPY) tracks S&P 500 Index. IShares Core S&P 500 ETF has $164.29 B in assets, SPDR S&P 500 ETF has $278.21 B. IVV has an expense ratio of 0.04% and SPY charges 0.09%.
Investors looking for cheaper and lower-risk options should consider traditional market cap weighted ETFs that aim to match the returns of the Large Cap ETFs.
To learn more about this product and other ETFs, screen for products that match your investment objectives and read articles on latest developments in the ETF investing universe, please visit Zacks ETF Center .
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