Franklin Templeton launches first actively-managed Euro Green Bond ETF for European Investors

From Franklin Templeton Investments
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FRANKLIN TEMPLETON LAUNCHES FIRST ACTIVELY-MANAGED EURO GREEN BOND ETF FOR EUROPEAN INVESTORS

London 29 April 2019 – Franklin Templeton1 is launching Europe’s first actively-managed Euro Green bond ETF. Managed by London-based David Zahn, Head of European Fixed Income, and Rod MacPhee, Portfolio Manager, Franklin Templeton Fixed Income Group, the new Franklin Liberty Euro Green Bond UCITS ETF2 will provide exposure to bonds supporting projects that are aligned to a low-carbon future and will aim to provide exposure to the European green bond market whilst maximising total returns.

The new ETF will be listed on the Deutsche Börse (DB) on 30th April and subsequently on the London Stock Exchange (LSE), the Borsa Italiana and the SIX Swiss Exchange on 2nd May thus joining a strong line-up of nine smart beta and active ETFs within the Irish-domiciled Franklin LibertySharesTM UCITS ETF range.

Caroline Baron, Head of ETF Sales EMEA, said:
“Demand is rising in Europe for high conviction ESG products due to increasing investor and regulatory pressure to incorporate green, ethical and governance factors into investment portfolios. While traditional passive ETFs continue to grow in popularity, we believe that with securities such as green bonds, an actively-managed ETF vehicle that offers full transparency, flexibility and tradability can add value and insight to investors. With this new addition, we are excited that the Franklin Liberty Euro Green Bond UCITS ETF, which is priced at 30 basis points, will further complement our existing active management ETF range”.

The Franklin Liberty Euro Green Bond UCITS ETF will invest at least 70% of its net assets in greenlabelled bonds, with the balance made up of unlabelled bonds which are climate-aligned, i.e. bonds that are not labelled as green but are nonetheless financing solutions that contribute to a low-carbon future while at the same time reducing their own carbon intensity will be deemed to be eligible. By investing in this manner, this new active ETF expects to provide liquidity to new and existing climate-aligned projects with environmental benefits.

Pricing opportunities through active management

David Zahn explains: “In periods of risk aversion, green bonds exhibit lower volatility as investors tend to hold on to these bonds. Our data3 indicates that in both the primary markets and secondary markets, 72% of green bonds had tighter spreads than ordinary bonds after seven days, and 62% were tighter after 28 days respectively. We believe that active management gives us the best opportunity to benefit from these pricing opportunities. As for unlabelled green bonds, we think this universe offers compelling opportunities that are less well-known than their labelled green counterparts because there is comparatively less demand.”

He added: “As an investment team, we think it is important to use our position to push for accountability and hence we will require all issuers in our portfolio comply with a baseline level of environmental impact reporting regardless whether the issue is labelled green or held in the portfolio.”

The investment team will employ a fundamental, bottom-up credit analysis on corporate bonds, while drawing from Franklin Templeton’s proprietary ESG model on sovereigns. While the focus will be on eligible green bond securities, each investment will be subject to internal credit approval. The issue selection process and other actively-managed techniques such as sector allocation, duration and curve management will be utilised in order to enable the Fund to outperform the Bloomberg Barclays MSCI Euro Green Bond Index.

Since the first issuance in 2007, Europe has remained a cornerstone in the global green bond market, with cumulative issuance totalling € 165 billion4. “Green” refers to how the proceeds of the bond issue will be spent, typically a promise to use the proceeds to finance or re-finance, in part of fully, new or existing sustainable projects. Green bonds generally offer a fixed return and are most often issued by financial institutions, governments or companies in accordance with the Green Bond Principles (GBP) – a voluntary set of principles that promote transparency, disclosure and integrity in the green bond market.

Xetra TickerLSE TickersBorsa Italiana TickerSIX Ticker
Fund NameISINEURGBPEurEurEur
Franklin Liberty Euro Green Bond ETF IE00BHZRR253 FLRG FVUG FLRG FLRG FLRG

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Franklin Templeton launches first actively-managed Euro Green Bond ETF for European Investors (PDF)

Notes to Editors:

  1. Franklin Resources, Inc. [NYSE:BEN] is a global investment management organization operating as Franklin Templeton. Franklin Templeton provides global and domestic investment management to retail, institutional and sovereign wealth clients in over 170 countries. Through specialized teams, the company has expertise across all asset classes—including equity, fixed income, alternative and custom solutions. The company’s more than 650 investment professionals are supported by
    its integrated, worldwide team of risk management professionals and global trading desk network. With offices in over 30 countries, the California–based company has more than 70 years of investment experience and approximately $712 billion in assets under management as of March 31, 2019. For more information, please visit www.franklintempleton.co.uk
  2. The Franklin Liberty Euro Green Bond UCITS ETF is a sub-fund of the Franklin LibertyShares ICAV, an Irish Collective Asset-managed Vehicle, incorporated under the laws of Ireland. The views expressed are those of the investment manager and the comments, opinions and analyses are rendered as of the publication date and may change without notice. The information provided in this material is not intended as complete analysis of every material fact regarding any country, region or market. An investment in Franklin LibertySharesTM UCITS ETF range entails risks which are described in the prospectus, its supplements and in the relevant Key Investor Information Document. The value of investments and income received from them can go down as well as up, and investors may not get back the full amount invested. Past performance is not an indicator or a guarantee of future performance. Franklin LibertySharesTM UCITS ETFs (domiciled outside of the U.S. or Canada) may not be directly or indirectly offered or sold to residents of the United States of America or Canada. ETFs trade like stocks, fluctuate in market value and may trade at prices above or below their net asset value. Brokerage commissions and ETF expenses will reduce returns.
  3. Source: Green Bond Pricing In The Primary Market, January – June 2018, page 14:
    https://www.climatebonds.net/system/tdf/reports/cbi_pricing_h1_2018_01l.pdf?file=1&type=node&id=35167&force=1
  4. Source: Bloomberg NEF (https://about.bnef.com/), total green bond issuance as of Q1 2019

This press release is intended to be of general interest only and does not constitute professional advice. Franklin Templeton and its management groups have exercised professional care and diligence in the collection and processing of the information in this press release. Franklin Templeton makes no representations or warranties with respect to the accuracy of this document. Franklin Templeton shall not be liable to any user of this report or to any other person or entity for the inaccuracy of information contained in this press release or for any errors or omissions in its contents, regardless of the cause of such inaccuracy, error or omission.
Any research and analysis contained in this document has been procured by Franklin Templeton for its own purposes.

Issued by Franklin Templeton Investment Management Limited (FTIML). FTIML is authorised and regulated in the United Kingdom by the Financial Conduct Authority.