Franklin Templeton Converts Three Mutual Funds to ETFs

It’s said that moving is one of the most stressful events in life. 

But it can also be transformative, which may be the case for three mutual funds in Franklin Templeton’s Fund Allocator Series that are being moved to ETFs. It’s a decision asset managers have been weighing against adding dual share classes or maintaining similar strategies in the different wrappers.

“The conversions are designed to broaden investor access while preserving each fund’s investment objective, substantially similar strategy and historical performance,” a Franklin spokesperson said. “We evaluate the appropriate vehicle on a fund-by-fund basis. In this case, converting these institutional-only funds to ETFs broadens investor access while maintaining continuity for existing shareholders.” 

Don’t Everybody Share at Once

Although Vanguard’s patent on share classes expired in 2023 and the SEC has approved exemptions for dozens of firms, Franklin Templeton included, asset managers have been somewhat slow to launch them, said David Cohne, a mutual fund and active management analyst at Bloomberg Intelligence. “Everyone’s filing, but no one’s launching,” he said. “The operational ecosystem is really still catching up. It seems like the regulatory green light came much faster than what we would consider the industry plumbing.” 

The affected Franklin funds:

• The U.S. Core Equity Fund will move to the existing $2 billion U.S. Large Cap Multifactor Index ETF. 
• The International Core Equity Fund will become the Franklin Core International Enhanced Equity ETF, a new product.
• And the Emerging Market Core Equity Fund will become the Franklin Core Emerging Market Enhanced Equity ETF, which is also new.

Mover Advantage: Moving the whole strategy to an ETF wrapper rather than doing a dual share class has a couple of advantages. “It offers immediate scale, an existing track record, existing assets, and so it can help sell the ETF as opposed to launching a new share class,” Cohne said. It also avoids maintaining two distribution structures around the same portfolio. “A full conversion is just cleaner if they think that ETF wrapper is a better long-term home for that strategy.”