The ETF Show - Franklin's New Multi-Asset Income ETF

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  • 09 mins 19 secs
Ed Perks, CIO for Franklin Income Investors, discusses the launch of Franklin Templeton’s new income focused, multi-asset ETF (ticker INCM), and why the underlying strategy is both compelling in today’s market and timeless.
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Jonathan
Welcome to this edition of the ETF show. Joining us today to discuss Franklin Templeton's Franklin income focused ETF ticker in CCM is Ed Perks, chief investment officer for Franklin Income Investors.


Jonathan
Ed, thank you very much for joining us.


Ed
It's great to be with you. Thanks.

Jonathan
FRANKLIN Income investors manages nearly $85 billion in multi-asset income strategies, including the Franklin Income Fund. What does the launch of NCM mean to your team and the ETF business at Franklin Templeton?


Ed
Yeah, well, I mean, I think first just address it from Franklin Templeton standpoint. I think this is a really exciting time for our ETF business, just achieving over 15 billion in assets globally. This is something that in my over 30 year career at Franklin Templeton has been one of the, I think, more important developments seeing this growth. The last 5 to 7 years in particular.


Ed
But as I think about where our firm is going forward, ETFs are definitely one of the key areas of growth that we see as we look forward in our industry. So a really exciting time. You know, bringing that back to Franklin income Investors, which is the investment team that I manage. We're really excited about this because as we look about as we look at kind of what clients need, we believe we have a really demonstrated capability in multi-asset income investing.


Ed
And it's really important for us to always think about innovating for our clients. So being able to deliver the investment capability that we have really in any way that our clients need it. And now when we look at the ETF offerings, certainly there are income oriented ETFs in both the equity space as well as fixed income. But we think that from ETF specific ETF investors, they're more interested today in outcome oriented solutions where that goal might in fact be income as well.


Ed
We think our dynamic, flexible approach is really a differentiated offering in the ETF market.

Jonathan
IE income is a multi-asset income ETF. Can you talk about the philosophy and key differentiators of the strategy?

Ed
Yeah, no. You know, I think it was really important for us to work very closely with our ETF team over over the last several years really to get to the point where we could offer a differentiated income and income solution, go to market, but also importantly, really leverage on that demonstrated capability and long term track record that we have, particularly with strategies like Franklin Income Fund, which is one of the flagship and largest mutual fund for Franklin Templeton.

Ed
And so it was important to kind of leverage that, but at the same time adapt to the unique nuances of the ETF vehicle. So, you know, our key objective here is really to provide attractive income across all market environments. And it's really that flexibility that we have. How do we create or ensure that we're leveraging as broad an opportunity said, while investing for income as possible.

Ed
So we start out and really our center should be thought of as a strategy that broadly 50% equity type securities, 50% fixed income type securities, but importantly, tremendous flexibility in how we go about blending those two asset classes. So there are times in recent markets where we've been very tilted towards equity and other equity like instruments, and then like today we've actually pivoted and we have a preference in our strategies for some of the opportunity and fixed income markets.

Jonathan
And I speak with a lot of portfolio managers on the topic of why their strategy is appropriate for today's market. But those are typically asset class or sector specific. What makes Multiasset investing a compelling offering today?

Ed
Yeah, I think directly addressing that. Why now? With a multi-asset income strategy, you really can invest over a range of different market environments. And we do think the challenges and the challenges and the opportunities to be fair in in every market environment are somewhat unique. Right. So we can think about these these last couple of years as we enter the pandemic.

Ed
Certainly markets diverge tremendously. Fixed income markets, yields plummeted. It was very good for bond prices, but for income investors, that was very little opportunity that really encouraged us to think about other opportunities and markets. Dividend paying common stocks in particular really stood out while on the fixed income. We blended both really understating the assets and really trying to control our duration exposure.

Ed
Fast forward to late last year, that completely flipped on its head. We saw stocks that performed really well into late 2021, but then came under increasing pressure. Fixed income markets really felt pretty unprecedented pressure from the very sharp, very swift rise and interest rates that completely changed the landscape, not just on a yield basis, but when we look across the average prices of bonds, across things like investment grade corporates and high yield corporates, they really felt the impact of that move and interest rates that create a real opportunity for us to shift the portfolios that we manage from just six quarters ago being nearly three quarters equity and other equity instruments.

Ed
So now being north of 60% in fixed income. So a really dynamic approach to addressing what each unique market environment poses. So when you contrast that with other strategies maybe that are more limited to certain assets or certain styles, you know, we think the contrast is pretty stark and a dynamic tactical approach is one that's really key in helping deliver this stable, attractive stream of income, but always being mindful of, okay, where are the key risks and markets that we want to think about?

Ed
A year ago it was duration, it was interest rate risks. Today, interest rate risk is is we're much more comfortable with that. And we're thinking more about what if the economy really slows and feels the impact of of rising rates? How does that impact overall equity market risk? How does it impact credit risk?

Jonathan
And how can clients think about owning or allocating to income?

Ed
Yeah, so we do think there are ETF specific investors that are looking for those income solutions. Now. I think they could come at it a number of different ways where Franklin income focused AI and CRM can really meet that need. First it's the investor that might be a little bit more tilted to income and growth in their overall portfolio.

Ed
In that case, a strategy like ours that really has that broad opportunity set across income investments can play a nice foundational role in that income and growth portfolio. You know, on the same hand, if you if you think about this more recent market environment, right, the ability to be tactical and manage to a different set of risks that we that we think present investors real challenges in different unique markets, a tactical approach with this broad opportunity set can also play a really important role in a portfolio where that tactical adjustment can add a lot of value.

Ed
So you know, I think there's also just this other dynamic. When we look back over decades, there are clearly market environments over relatively long periods of time where growth is a more important driver of an investor's total return. There are other markets where it's more balanced. There have been markets where capturing attractive current income can be a really important part of an investor's total return.

Ed
So when we step back, we think about all that has happened in our economy during the pandemic year. Where we sit today and the kind of growth that our economy may experience, possibly below longer term trend growth through the rest of the decade, we think investors should really consider multi-asset income strategies like Frankel Income focused.

Jonathan
Well, thank you very much for sharing with us today.

Ed
It's been great. Thank you so much.

Jonathan
And to our viewers, thanks for watching. For Asset TV. I'm Jonathan Forsgren. We'll see you next time.

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