Franklin Templeton portfolio-shielding ETF to become transparent

Franklin Templeton’s only portfolio-shielding exchange traded fund will make its holdings fully public by the middle of December, filings show.

The fund’s board voted to change the $3.2mn ClearBridge Focus Value ESG ETF from an ActiveShares non-transparent ETF to a conventional transparent ETF by December 16, the firm has disclosed.

A Franklin Templeton spokesperson said the fund’s underlying strategy and portfolio management would not change.

“Although the fund will be permitted to invest in a wider range of investments as a result of this transition, it’s expected to be managed in a substantially similar manner to how it is currently managed,” she said.

She did not respond to requests for comment about why the firm had decided to make the ETF fully transparent.

The fund had outflows of just $14,900 during the year ended August 31, Morningstar Direct data show. It carries a net expense ratio of 49 basis points that will not change, according to the filing.

It launched in 2020 as the ClearBridge Focus Value Fund and was renamed in May 2021 to highlight its environmental, social and governance investment mandate.

It invests in a concentrated portfolio of primarily large-cap stocks. About 80 per cent of the fund’s net assets must be invested in companies that satisfy ESG criteria.

When the fund launched, ClearBridge was a Legg Mason affiliate and Legg Mason owned a stake in Precidian, which owns the ActiveShares portfolio-shielding technology. Franklin picked up Legg Mason in 2020, along with its affiliates and its 19.9 per cent ownership stake in Precidian, a company spokesperson said. Nine funds license Precidian’s ActiveShares technology.

Funds that use the ActiveShares model disclose their holdings only to authorised participant representatives. This differs from other portfolio-shielding models, which require funds to publish proxy trading baskets that have characteristics that are similar to the fund’s holdings.

Overall, there were 23 ClearBridge-branded mutual funds and ETFs with a combined $52.3bn in assets as of August 31, according to Morningstar Direct. Together, those funds recorded $4.7bn in net outflows during the year ended last month.

Three are ESG-focused: the $176mn ClearBridge Large Cap Growth ESG ETF, the $159mn ClearBridge All Cap Growth ESG ETF and the $115mn ClearBridge Dividend Strategy ESG ETF.

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