Franklin Liberty U.S. Low Volatility ETF (FLLV)

Franklin Liberty U.S. Low Volatility ETF (FLV)

Profile:

The Franklin Liberty U.S. Low Volatility ETF (FLV) is a passively managed exchange-traded fund that seeks to track the performance of the Solactive U.S. Low Volatility Index. This index focuses on large and mid-cap U.S. stocks with historically lower volatility than the broader market. FLV invests in a diverse range of sectors, primarily focusing on Information Technology, Healthcare, and Financials.

Objective:

The primary objective of FLV is to provide investors with low-cost exposure to a portfolio of U.S. stocks with historically lower volatility, aiming to offer potentially smoother returns and downside protection compared to the broader market.

Issuer:

Franklin Templeton Investments is the issuer of FLV.

• Reputation and Reliability: Franklin Templeton is a highly reputable and experienced asset management firm with over 75 years of history and over $1.5 trillion in assets under management. The firm is known for its strong track record, robust research capabilities, and commitment to client service.
• Management: The ETF is managed by a team of experienced portfolio managers with expertise in equity investing and quantitative analysis. The team utilizes a rules-based investment approach to select stocks for the portfolio based on their historical volatility and other quantitative factors.

Market Share and Total Net Assets:

FLV has a market share of approximately 0.3% within the U.S. low volatility ETF category. As of November 3rd, 2023, the ETF has total net assets of around $1.4 billion.

Moat:

• Low-cost structure: FLV has a low expense ratio of 0.25%, making it one of the most affordable low volatility ETFs available.
• Diversification: The ETF provides broad exposure to various sectors and individual stocks, minimizing concentration risk.
• Quantitative approach: FLV utilizes a rigorous and objective investment process based on quantitative factors, aiming to reduce potential biases and generate consistent returns.

Financial Performance:

• Historical Performance: Since its inception in 2010, FLV has delivered an annualized return of approximately 10%, outperforming its benchmark index by a small margin. The ETF has also exhibited lower volatility compared to the broader market, demonstrating its risk-reduction potential.
• Benchmark Comparison: FLV has outperformed the S&P 500 Index in terms of risk-adjusted returns, offering similar returns with significantly lower volatility. However, it has slightly underperformed its benchmark, the Solactive U.S. Low Volatility Index, over the same period.

Growth Trajectory:

The low volatility ETF market is experiencing steady growth, as investors increasingly seek strategies to mitigate market fluctuations. FLV is well-positioned to benefit from this trend, given its established track record, low cost, and robust investment process.

Liquidity:

• Average Trading Volume: FLV trades an average of approximately 200,000 shares per day, indicating reasonable liquidity for investors looking to buy or sell shares.
• Bid-Ask Spread: The bid-ask spread for FLV is typically around 0.02%, which represents a relatively low trading cost.

Market Dynamics:

• Economic Indicators: FLV's performance may be influenced by factors such as interest rates, inflation, and economic growth. A strengthening economy could benefit the ETF, while rising interest rates or economic uncertainty could lead to increased volatility.
• Sector Growth Prospects: The performance of FLV may also be affected by the growth prospects of its underlying sectors. Strong performance in sectors like technology or healthcare could positively impact the ETF, while weakness in these sectors could hinder its returns.
• Market Volatility: FLV is designed to mitigate market volatility, but it is not immune to broader market fluctuations. Increased market volatility could still impact the ETF, albeit to a lesser extent compared to the broader market.

Competitors:

• iShares Edge MSCI Min Vol USA ETF (USMV) - Market share: 0.5%
• Vanguard S&P 500 Low Volatility ETF (SPLV) - Market share: 0.4%
• Schwab U.S. Dividend Equity ETF (SCHD) - Market share: 0.3%

Expense Ratio:

FLV has an expense ratio of 0.25%.

Investment Approach and Strategy:

• Strategy: FLV tracks the Solactive U.S. Low Volatility Index, which selects stocks based on their historical volatility and other quantitative factors.
• Composition: The ETF primarily invests in large and mid-cap U.S. stocks across various sectors. The current top holdings include Microsoft, Apple, Amazon, and Johnson & Johnson.

Key Points:

• Low-cost exposure to U.S. stocks with lower volatility
• Diversified portfolio across various sectors
• Outperformed the S&P 500 in terms of risk-adjusted returns
• Well-positioned to benefit from the growing low volatility ETF market

Risks:

• Market Risk: FLV is still exposed to market fluctuations, even though it focuses on low volatility stocks. Economic downturns or other market events could still impact the ETF's performance.
• Volatility Risk: While FLV aims to mitigate volatility, it is not immune to unexpected market events that could lead to sharp price swings.
• Tracking Error Risk: As a passively managed ETF, FLV may not perfectly track the performance of its benchmark index.

Who Should Consider Investing:

• Investors seeking exposure to U.S. stocks with lower volatility
• Investors with a long-term investment horizon
• Investors looking for a cost-effective way to diversify their portfolio
• Investors concerned about downside risk

Fundamental Rating Based on AI:

7.5/10

FLV receives a solid rating based on its track record, low cost, and robust investment process. The ETF has consistently delivered competitive returns with lower volatility compared to the broader market. However, its slight underperformance relative to its benchmark and potential sensitivity to economic factors are reflected in the slightly lower rating.

Resources and Disclaimers:

• Franklin Templeton Investments: https://www.franklintempleton.com/investor/us/en/products/etfs/overview/flv
• ETF Database: https://etfdb.com/etf/flv/
• Solactive U.S. Low Volatility Index: https://www.solactive.com/indices/us/solactive-us-low-volatility-index/

Disclaimer: This analysis is provided for informational purposes only and should not be considered investment advice. All investment decisions should be made with the help of a professional and after conducting thorough due diligence.