What is an ETF?

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All investments involve risks, including possible loss of principal. Generally, those offering potential for higher returns are accompanied by a higher degree of risk. Stock prices fluctuate, sometimes rapidly and dramatically, due to factors affecting individual companies, particular industries or sectors, or general market conditions.

Special risks are associated with foreign investing, including currency fluctuations, economic instability and political developments. Investments in emerging and developing markets involve heightened risks related to the same factors, in addition to those associated with these markets’ smaller size, lesser liquidity and lack of established legal, political, business and social frameworks to support securities markets. Funds that invest their assets primarily in companies in a specific country or region may also experience greater volatility than a fund that is more broadly diversified geographically. To the extent the funds focus on particular countries, regions, industries, sectors or types of investment from time to time, they may be subject to greater risks of adverse developments in such areas of focus than funds that invest in a wider variety of countries, regions, industries, sectors or investments. Smaller, mid-sized and relatively new or unseasoned companies can be particularly sensitive to changing economic conditions, and their prospects for growth are less certain than those of larger, more established companies. Historically, these securities have experienced more price volatility than larger company stocks, especially over the short-term. The non-diversified funds may invest in a relatively small number of issuers and, as a result, be subject to a greater risk of loss with respect to their portfolio securities.

Derivatives, including currency management strategies, involve costs and can create economic leverage in the portfolio which may result in significant volatility and cause a fund to participate in losses on an amount that exceeds the fund’s initial investment. A fund may not achieve the anticipated benefits, and may realize losses when a counterparty fails to perform as promised.

The markets for particular securities or types of securities are or may become relatively illiquid. Reduced liquidity will have an adverse impact on the security's value and on a fund's ability to sell such securities when necessary to meet a fund's liquidity needs or in response to a specific market event.

Interest rate movements, unscheduled mortgage prepayments and other risk factors will affect a fund’s share price and yield. Bond prices, and thus a fund’s share price, generally move in the opposite direction of interest rates. Therefore, as the prices of bonds in the fund adjust to a rise in interest rates, the fund’s share price may decline. Distributions to shareholders may decline when prevailing interest rates fall or when a fund experiences defaults on debt securities it holds. Changes in the financial strength of a bond issuer or in a bond’s credit rating may affect its value.

The senior loans and high yield corporate debt securities and instruments in which certain funds invest tend be rated below investment grade. Investing in higher-yielding, lower-rated senior loans and corporate debt securities and instruments involves greater risk of default, which could result in loss of principal – a risk that may be heightened in a slowing economy. 

Sovereign debt securities are subject to various risks in addition to those relating to debt securities and foreign securities generally, including, but not limited to, the risk that a governmental entity may be unwilling or unable to pay interest and repay principal on its sovereign debt, or otherwise meet its obligations when due.

These and other risks are discussed in the funds’ prospectuses.

Smart beta ETFs use a rules-based investing methodology and track an underlying index, passive ETFs track a market-cap weighted index and active ETFs’ portfolio managers use various investment strategies in order to reach their investment objectives. 

Performance of the smart beta and passive ETFs may vary significantly from the performance of the underlying index as a result of transactions costs, expenses and other factors. There can be no assurance that the smart beta ETFs’ multi-factor stock selection process will enhance performance. Exposure to such investment factors may detract from performance in some market environments, perhaps for extended periods. The active ETFs are actively managed, but there is no guarantee that the manager’s investment decisions will produce the desired results.

Franklin Distributors, LLC. Member FINRA/SIPC.