Felicity Walsh, Managing Director of Franklin Templeton for Australia and New Zealand, discusses the launch of two ETFs on the ASX.
Manny Anton: I am Manny Anton for Finance News Network and today I have the pleasure of speaking with Felicity Walsh, MD and Head of Australia and New Zealand for Franklin Templeton. Franklin Templeton have been a trusted investment partner in Australia since 1987. They pride themselves on bringing together diverse investment teams with expertise across asset classes, investment styles, and geographies. Today we’ll be delving into the launch of two new ETFs on the ASX. Welcome to the network, Felicity.
Felicity Walsh: Thank you very much, Manny.
Manny Anton: Okay, so Felicity, could we begin perhaps by you providing a brief overview of the two ETFs? Namely, the Global Growth Fund (ASX:FRGG) and the Absolute Return Bond Fund (ASX:FRAR)?
Felicity Walsh: Yeah, so we’re really excited about the two ETFs we launched into the Australian market on the 19th of April. They’re ETMFs, so listed versions of our managed share classes of two of our leading managed funds in the Australian market, so our Franklin Global Growth Fund and our Franklin Australian Absolute Return Bond Fund. And the ETFs are identical to the managed funds. They’re just allowing a listed entry point for investors to access those incredible investments that otherwise were just in managed fund form.
So let me start with Franklin Global Growth. So the ticker for that is FRGG. This is a global growth portfolio, pretty concentrated portfolio, kind of 30 to 40 stocks. It’s our leading global growth strategy in the market. Ex Australia provides investors access to more kind of mid-cap, slightly less mega-cap stocks, and as I mentioned, in a really concentrated form. So really high active share strategy, and we’ve had huge success in the manage fund, so really looking to just open up the investor base to those listed investors as well.
And then with Franklin Absolute Return Bond Fund. So that’s a absolute return style bond strategy. Domiciled here in Australia, investment team are here in Australia. We do have some access to global fixed income in that portfolio, but it is designed and based for Australian investors. And with that absolute return style, we see it as kind of a core in the fixed income program that can be used so clients can add on other kind of flavours of fixed income around that core strategy. And again, it’s been one of our key strategies that we sell into the Australian market in managed fund form, and again, just wanted to really open up the access to other investors. So, again, listing that share class as well.
Manny Anton: Okay, great. They both sound pretty good. Could we delve a little bit into each individual fund and the investment style within it? More so probably the criteria of each fund. How do those funds determine their target exposures?
Felicity Walsh: Yeah, sure. So the Global Growth Fund is, they’re really looking for quality growth companies. They’re looking for companies that are differentiated. As I mentioned, it’s a very concentrated portfolio, so they’re looking for differentiation between the stocks to build a really diverse portfolio but with that real concentration. So, really high conviction. The team of analysts, they’re spending a lot of time on the fundamentals. They then bring that all together to make sure that there’s a lack of overlap between the different streams to build this very diverse and very concentrated high active share portfolio.
It’s well-differentiated as well to the rest of the market, because it’s got that slightly mid-cap bias. It pairs really well with some of the really mega-cap funds, and as I mentioned, it’s been a hugely successful fund for us. It’s over $1 billion in the managed fund, so a really great, great core global growth strategy, and ex Australia. So again, complements Australian portfolios where they’ve got a dedicated Australian equity allocation, this obviously complements.
With Franklin Absolute Return Bond, the bond strategy, again, that’s really a core holding in Australian fixed income portfolios. It’s got a number of levers that more traditional fixed income portfolios perhaps don’t have that are more tied to benchmarks. So we’re aiming to beat cash by kind of two to 3% per annum. So not being tied to a bond benchmark gives it a little bit of differentiation and has some flexibility around being able to go kind of shorter duration. There’s quite a strong focus on the macro with this strategy. So the team that run it, Chris Siniakov, Andrew Canobi are the lead portfolio managers very heavily focused on the macro as well as the credit side. So, brings together a really good, diverse portfolio to form the core of an Aussie bond program.
Manny Anton: Okay. I mean, who are the target investors for-
Felicity Walsh: Yeah, target investors. So for us, our managed funds are really targeted at advised clients. About 90, 95% of our investors would be advised clients, so investing via our platforms. We do see that the exchange-traded managed funds will have a similar audience, but we’re trying to broaden out here. So brokers who are perhaps less inclined to use managed funds will look at the ETMF so they can use that listed option instead of having to go through the managed fund. But yeah, advisors constructing portfolios on behalf of individual investors who are looking for diversified portfolios. Both these strategies are core components of your global equities or fixed income buckets within those portfolios.
Manny Anton: In terms of the size of these ETFs?
Felicity Walsh: Yeah, well that’s a great question. So we’d love them to fly off the shelves. As I mentioned, both of the funds in managed fund form are over $1 billion or around that $1 billion mark and we really try and target that $1 billion to get really good scale. So we’re chasing the next billion, so we’re hoping to get to 2 billion in both of these strategies, whether it’s via the managed fund or the ETF over the next few years. Now we’re at that scale of a billion, there’s good momentum to get to that 2 billion. We’ve got grand plans on getting scale. They’re both very scalable strategies. Plenty of capacity in both the strategies, and with local PM representation on both the strategies we can do a lot in market talking to clients with our portfolio managers.
Manny Anton: Okay. And in terms of these two ETFs, what sets them apart from some of the other ETFs in the market?
Felicity Walsh: So a couple of things. I guess the fact they’re both active ETFs. So the majority of ETFs in market are more passive styles, so these are both active. We’ve got a number of other active ETFs in market and we’ve seen that clients do need those active ETFs in particular markets, and they can generate much better or more diverse returns than you see from the purely passive ETFs.
They are ETMFs, so they’re the listed form of the managed fund. So a massive advantage of that is it’s the same pool of assets as the managed fund. That means that investors can actually switch between the managed fund and the listed without creating any tax issues. So you can switch between the two freely, which is a huge advantage for active ETFs. So we think that’s a huge positive for investors having that additional flexibility and optionality.
Manny Anton: Okay, great. And look, just to finish up, what are the benchmarks that both of these ETFs, and how are you going to benchmark yourselves?
Felicity Walsh: So for the global equity ETF, that’ll be the MSCI All World ex Australia Index, we aim to beat that index over a kind of three- to five-year period net of fees. And we’ve certainly done that since inception of the fund in the managed fund. With the bond strategy, because it’s an absolute return style, we’re not actually targeting a benchmark, we’re targeting a cash return. So we’re looking at two to three above cash, so our benchmark there is essentially cash. That’s our starting point for the bond fund, and again, expecting to outperform that after fees by two to 3% over.
Manny Anton: Fantastic. All right. Well, Felicity, thank you for your time today. Thanks for coming in and it was great to hear about the ETFs.
Felicity Walsh: Thank you, Manny.
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