Franklin Templeton Throws Hat In ETF Ring
June 12, 2012
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Franklin Templeton, the San Mateo, Calif.-based mutual fund firm known for its early focus on the prospective nature of emerging markets investing, has finally joined the long line of storied money managers that have filed for permission to begin marketing active ETFs.
In regulatory paperwork dated June 8, the company said it was applying for “exemptive relief” to offer actively managed exchange-traded funds, the first of which would be the Franklin Templeton Short Duration Government ETF. The proposed fund will own debt issued or guaranteed by the U.S. government, its agencies or instrumentalities, the “40-App” filing with the Securities and Exchange Commission said.
Apart from the initial fund, the firm also cast a much wider net, detailing plans in the filing to bring to market in ETF wrappers products targeting equity and fixed-income securities or currencies traded in U.S. or non-U.S. markets. It also said the funds it markets will be able to invest in mortgage-backed or asset-backed securities.
While Franklin Templeton’s exemptive relief filing comes a bit later than many other big mutual fund companies—including Alliance Bernstein, Janus, Eaton Vance and Dreyfus—it’s hardly a surprise that it’s interested in marketing active strategies. The mutual fund world is largely composed of active managers, and successful firms in the space have said they are keen on continuing to serve up alpha-seeking strategies, even in an ETF wrapper.
About 18 months ago, we wrote at length about the growing trend of legendary mutual funds companies looking to join the world of ETFs, arguing many of these firms were up against an “if-you-can’t-beat-them-join-them” sort of choice in a piece headlined “What’s Up With All The 40-APP Filings?”
Exemptive relief grants ETF firms exception to sections of the Investment Act of 1940 and is just the first step in the path to launching ETFs. It often takes at least six to 12 months from the date of the initial filing for a company’s first ETF to hit the market.
A More Active Future?
The problem for many of these firms is that so far the vast majority of the $1.140 trillion in ETF assets—as in about 99.5 percent of that total—are in indexed strategies. So far, active ETFs haven’t attracted serious assets, though notable exceptions loom as examples that, perhaps, the next phase of ETF development may involve active funds.
Pimco, for example, has had significant success attracting assets to a few of its active fixed-income funds. The Newport Beach, Calif.-based firm’s Pimco Enhanced Short Maturity Strategy Fund (NYSEArca: MINT) is currently the biggest active ETF in the world, with $1.73 billion in assets.
More recently, Pimco’s star money manager, Bill Gross, added an ETF version of his $258 billion Pimco Total Return Fund—the biggest mutual fund in the world.
The Pimco Total Return ETF (NYSEArca: BOND) has gathered $1.34 billion in assets since its March 1 rollout, making it one of the most successful ETF launches ever.
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