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Since Vanguard Canada introduced three (now five) asset allocation ETFs a year ago, rivals have been scrambling to catch up. Little wonder, as those first three products — bearing TSX tickers VBAL, VGRO and VCNS — quickly scooped up a billion dollars in assets. Next out the gate was BlackRock Canada’s iShares, which launched two All-in-One ETF portfolios in December 2018 with similar-sounding tickers: XBAL and XGRO. Then a few weeks ago, as Dale Roberts nicely summarized here at the Hub, BMO ETFs jumped aboard with a similar suite as Vanguard’s original suite: ZBAL, ZGRO and ZCON, driving costs down as they did. See BMO keeps it simple.
Up until now, mutual fund salespeople operating in the MFDA channel (Mutual Fund Dealers Association) have been clamouring for ETF portfolios because if they aren’t also securities licensed, they couldn’t buy ETFs for their clients directly. That’s why Thursday’s announcement by Franklin Templeton is of interest: it announced the launch of three multi-asset ETF portfolios to provide advisors and investors with a simple solution for investing in ETFs. Managed by Franklin Templeton Multi-Asset Solutions, each portfolio is a mutual fund that provides access to active asset allocation utilizing a combination of active, smart beta and passive ETFs across multiple asset classes and geographies.
These portfolios let mutual fund investors access Franklin Templeton’s new passive ETFs (see this Hub post a few weeks ago), in addition to its active and smart beta ETFs while not having to worry about asset allocation, rebalancing and currency management.
Franklin Templeton Investments Canada president and CEO Duane Green said in a press release that “Many investors are overwhelmed by the choice of ETFs available in the Canadian market.” That’s a fair statement, which is why I am working with Dale Roberts and eight other ETF experts to select the 2019 edition of the MoneySense ETF All-Stars, which will be published later this month. A year ago we were quick to spot the trend and made all three of the Vanguard portfolios All-Stars, albeit in a new category. The question for us this year is which of the newer offerings should be added? Stay tuned!
How these differ from Balanced Mutual Funds
We’ll outline the names of the new Templeton funds shortly but I did want to add the fact that mutual fund companies have long offered balanced mutual funds and asset allocation funds, both Canadian and global. These are usually actively managed and of course generally bear the high MERs that have caused Canada’s fund industry to be so criticized. Once upon a time, I often wrote about the Rip Van Winkle two-fund portfolios, which was simply a Trimark Balanced Fund and Templeton Growth Fund. And I have written in the past that “in theory, the only fund an investor needs is a global balanced fund.” That’s because they would cover all asset classes and geographies, with rebalancing and asset allocation all taken care of by active managers. That’s pretty much what’s going on with these ETF portfolios, with the difference being that the fees are much much lower: 20 basis points plus or minus 2, or a tenth the price of a typical balanced mutual fund.
So back to Franklin’s new entry.
Within a mutual fund trust structure, this suite of three diversified portfolios – conservative income, core and growth – includes active, smart beta and passive ETFs from the line-up of Franklin LibertyShares ETFs, in addition to third-party ETFs. The company says the portfolios are managed using a dynamic asset allocation and ETF selection process, while focusing on managing risk and currency exposures within each portfolio.
True, the fees are a bit higher but if you can get them in F class (through fee-based advisors), the fee is just 40 basis points. Otherwise, they are as stated below:
So without further ado, here are the three new portfolios:
Franklin Conservative Income ETF Portfolio provides high current income with some long-term capital appreciation by investing primarily in ETFs that hold Canadian, U.S. and international equity and fixed income securities. Fee is 1.15 per cent for series A and T and 0.40 per cent for series F and FT.
Franklin Core ETF Portfolio provides a balance between long-term capital appreciation and income with a focus on long-term capital appreciation by investing primarily in ETFs that hold Canadian, U.S. and international equity and fixed income securities. Fee is 1.40 per cent for series A and T and 0.40 per cent for series F and FT.
Franklin Growth ETF Portfolio provides long-term capital appreciation with additional stability derived from income by investing primarily in a diversified mix of ETFs that hold Canadian, U.S. and international equity and fixed income securities. Fee is 1.40 per cent for series A and T and 0.40 per cent for series F and FT.
The portfolios are co-managed by Ian Riach, SVP and portfolio manager, and Michael Greenberg, VP and portfolio manager, Franklin Templeton Multi-Asset Solutions. These portfolio managers have 33 and 16 years of industry experience, and 19 and 12 years with the firm, respectively.
