Learn More About Smart Beta and LibertyQ ETFs

What Are Smart Beta ETFs?

Smart beta ETFs are one of the fastest growing investment options available to investors. While the concept may seem complicated, watch this video for a simple explanation of how they work and what they are designed to achieve.

Smart beta refers to a methodology of index construction that seeks to achieve better risk-adjusted returns compared to traditional market capitalization weighted benchmark indexes. There is no guarantee that any strategy will achieve its objective. Franklin LibertyQ ETFs are not riskless investments, and investors can lose money. For additional risk disclosures, please see the prospectus.

Smart Beta...

…is an index that has been designed to achieve a specific outcome.

…is an evolved way of creating an index, using rules to target companies that demonstrate specific “factors”, or drivers of performance, in order to achieve a specific objective.

…targets a variety of factors, combining them in a strategic way, which may lead to stronger returns with less risk over time.

Understanding the LibertyQ Factor Methodology

Chandra Seethamraju, Ph.D., Vice President, Director of Systematic Modeling, Franklin Templeton Solutions, discusses the methodology behind Franklin’s multi-factor smart beta ETFs, including the rationale behind LibertyQ’s custom factor definitions and their factor weightings.

Smart beta refers to a methodology of index construction that seeks to achieve better risk-adjusted returns compared to traditional market capitalization-weighted benchmark indexes. There is no guarantee that any strategy will achieve its objective. Franklin LibertyQ ETFs are not riskless investments, and investors can lose money. For additional risk disclosures, please see the prospectus.

LibertyQ’s custom factor definitions

While many smart beta strategies utilize the same four factors, many employ standard, widely accepted approaches to measuring these factor exposures. We sought to develop custom factor measures which we believe could provide a more comprehensive evaluation of a stock's exposure to each factor.

What factors do LibertyQ smart beta ETFs utilize?

Our research led us to utilize four well-known factors in our smart beta ETFs: quality, value, momentum, and low volatility.

How is LibertyQ different from other smart beta ETFs?

LibertyQ's methodology is differentiated by how we define factors and how we combine or weight factors.

What are LibertyQ’s custom factor weightings?

Our LibertyQ multi-factor weighting is 50% quality, 30% value, 10% momentum and 10% low volatility. Based on our research, we emphasize the quality and value factors because both factors philosophically represent the way Franklin Templeton approaches active stock picking.

What are the LibertyQ Smart Beta ETFs designed to achieve?

The results of our smart beta research have lead us to believe that our robust factor definitions and custom factor weightings may help improve risk adjusted returns over the long-term.

Important Legal Information

All investments involve risks, including possible loss of principal. 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 markets involve heightened risks related to the same factors. 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. Performance of the funds may vary significantly from the performance of an index, as a result of transaction costs, expenses and other factors. For multi-factor smart beta funds, there can be no assurance that their 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. These and other risks are discussed in each of the fund’s prospectus.

Additional risks for FLQD: Companies that have historically paid regular dividends to shareholders may decrease or eliminate dividend payments in the future. A decrease in dividend payments by an issuer may result in a decrease in the value of the issuer’s stock and less available income for the fund. These and other risks are discussed in the fund’s prospectus.

ETFs trade like stocks, fluctuate in market value and may trade at prices above or below their net asset value. Brokerage expenses and ETF fees will reduce returns.

For more information on any funds, contact your financial advisor or download a prospectus. Investors should carefully consider a fund's investment goals, risks, sales charges and expenses before investing. The prospectus contains this and other information. Please read the prospectus carefully before investing or sending money.

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Reliance upon information in this posting is at the sole discretion of the viewer. Please consult your own professional advisor before investing. Franklin Templeton Investments accepts no liability whatsoever for any loss arising from the use of this posting or any information, opinion or estimate herein.

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Franklin Distributors, LLC. Member FINRA/SIPC. Prior to July 7, 2021, Franklin Templeton Distributors, Inc., and Legg Mason Investor Services, LLC served as mutual fund distributors for Franklin Templeton.