Mutual fund conversions have become increasingly popular over the past few years. Last year, Dimensional Fund Advisors transitioned six of its mutual funds into ETFs, bringing more than $40 billion in assets. JP Morgan followed suit by converting four funds with about $10 billion in assets. And other asset managers are sure to follow.
In late October, Franklin Templeton became the latest asset manager to convert two mutual funds into actively-managed ETFs. The firm launched the BrandywineGLOBAL-Dynamic U.S. Large Cap Value ETF (DVAL) and the Martin Currie Sustainable International Equity ETF (MCSE), which have about $250 million in assets between them.
“In converting these mutual funds to ETFs, we are responding to growing client demand for these products while also broadening our lineup to include additional strategic offerings in the actively managed U.S. large cap value and international growth spaces,” says Patrick O’Connor, Head of Global ETFs for Franklin Templeton.
See our Active ETFs Channel to learn more about this investment vehicle and its suitability for your portfolio.
DVAL Takes a Quant Approach
DVAL seeks long-term capital appreciation by investing in U.S. equities using a quantitative approach. More specifically, the fund shifts between two value-based models factoring in valuation, quality, and market sentiment, depending on prevailing market conditions.
With a 0.65% expense ratio and $183.4 million in assets, the fund offers investors outsized exposure to financials (33.5%), consumer discretionary (15.34%), and information technology (12.8%). The nearly 130 companies are primarily large-cap stocks worth over $50 billion, but the fund has a notable 16.4% allocation to $3-10 million market capitalizations.
MCSE Offers European Exposure
MCSE seeks long-term capital appreciation by investing in equity and equity-related securities of foreign companies. In particular, the fund focuses on companies with a strong history of high and sustainable return on invested capital (ROIC) over time.
With a 0.75% expense ratio and about $35 million in assets, the smaller fund focuses on investing in companies in Europe (69.6%), North America (16.5%), and Asia (5.9%). Aside from its notable lack of Asia exposure, the fund holds oversized positions in healthcare (27.6%) and information technology (21.7%) compared to its benchmark.
The Bottom Line
Franklin Templeton became the latest asset manager to convert successful mutual funds into active ETFs with the launch of DVAL and MCSE late last month. Investors interested in an actively-managed quant fund or European exposure may want to consider these ETFs for part of their portfolio.
Looking ahead, investors can also expect other asset managers to embrace mutual fund conversions as a way to meet growing investor demand for transparent, liquid, and tax-efficient ETFs.
Take a look at our recently launched Model Portfolios to see how you can rebalance your portfolio.
