Franklin Templeton plans to add 14 new employees to its ETF team — mainly in sales — as the firm strives to hit $50 billion in ETF assets under management by the end of 2025, Patrick O’Connor, Franklin’s global head of exchange traded funds, told Pensions & Investments.
O’Connor currently oversees 58 people on the ETF team globally. The hiring for what he referred to as “the class of ‘25” will be “very much focused in the U.S.,” he said, adding that the last big hiring round for the Franklin ETF team was in 2023, when it hired 18 people.
“Where we are in the business now, we have multiple tools for folks, and we’re in full growth mode,” O’Connor said.
As of Sept. 30, Franklin had $31.5 billion in ETF AUM globally spread across more than 100 funds, according to its website. About $25 billion of that is in the U.S., O’Connor said.
Global net inflows into Franklin’s ETFs totaled $9.1 billion in the 12 months ended Sept. 30, more than double the $4.1 billion that flowed in during the 12 months ended Sept. 30, 2023, according to Franklin data.
But Bryan Armour, director of passive strategies research for North America at Morningstar Research Services, a Morningstar subsidiary, said that based on historical trends, it will be a challenge for Franklin to hit that $50 billion in ETF AUM goal by the end of next year.
“Adding sales staff could help,” Armour said. “But they may struggle with the regulatory issues at (subsidiary) Western Asset, and they don’t have a stable of newer ETFs to benefit their growth, besides crypto. Asset growth would likely have to come from ETFs that have been around the block.”
The Franklin Bitcoin ETF, launched in January, had net assets totaling $747 million as of Dec. 5, Franklin’s website shows. The Franklin Ethereum ETF, which debuted in July, had assets totaling $48 million, the website shows.
Markets in 2025 are unlikely to perform as well as they have in 2024, “so Franklin would need to continue growing its net inflows to reach its goal,” Armour said.
“Market performance has been a major tailwind for asset growth this year and last,” he added.
Franklin Resources, the global investment management organization operating as Franklin Templeton, reported record AUM of $1.68 trillion as of Sept. 30, according to a Nov. 4 news release announcing its preliminary fourth quarter and fiscal year results.
Franklin reported $32.6 billion of long-term net outflows for its fiscal year ended Sept. 30, “inclusive of $48.6 billion of long-term net outflows at Western Asset Management,” the release said.
Western Asset’s woes
In August, Western Asset said that Ken Leech, who had served as its co-chief investment officer, had recently received a Wells Notice from Securities and Exchange Commission staff and was on a leave of absence, effective immediately. On Nov. 25, the SEC announced fraud charges against Leech, alleging that he had engaged in a multi-year scheme to allocate favorable trades to some portfolios while allocating unfavorable ones to others. The release also noted that, in a parallel action, the U.S. Attorney’s Office for the Southern District of New York on Nov. 25 announced charges against Leech.
Franklin doesn’t have many Western Asset ETFs, “so it hasn’t impacted us at all,” O’Connor said.
Collectively, the net assets of three Western Asset ETFs totaled about $75 million as of Dec. 3, according to Franklin’s website. However, one of those ETFs -- the $22 million Western Asset Total Return ETF -- is expected to be reorganized into the $41 million Western Asset Bond ETF effective Jan. 10, 2025, pending shareholder approval, the website says.
Building scale
Franklin launched its first ETF, the Franklin Short Duration U.S. Government ETF, in 2013. However, its real push into ETFs began in 2016 when it launched a suite of smart beta ETFs as well as a suite of active ETFs. In 2017, it launched its first passive ETFs, a suite of single country and regional ETFs.
“If you think about over the last eight or nine years of our existence, the first half or even two-thirds of that has just been building platforms globally, creating the tools and building scale,” O’Connor said. “That one third where we are now is where we’re really seeing the inflection curve of our growth.”
The Putnam Focused Large Cap Value ETF, which came to Franklin via its acquisition of Putnam Investments, completed on Jan. 1, “has seen tremendous flows all year,” he said.
That ETF, known by the ticker symbol PVAL, has attracted $1.1 billion of net inflows this year through Nov. 22, according to Franklin data.
“We think highly of PVAL, awarding it a Morningstar Medalist Rating of Silver,” Armour said of the $1.6 billion ETF.
PVAL has returned 26.7% this year through Dec. 4, beating the 20.2% return of its average large value category peer, according to Morningstar.
The 12 Putnam ETFs that Franklin inherited had assets under management totaling $1.9 billion as of Jan. 1, according to Franklin data.
“We are now at $3.9 billion,” O’Connor said of the 12 Putnam ETFs. “So, we are seeing tremendous growth in that, and that’s an exciting story in itself.”
Other funds with strong inflows this year have been the $711 million Franklin Senior Loan ETF (symbol FLBL), and the $603 million Franklin High Yield Corporate ETF (symbol FLHY) according to David Mann, head of ETF product and capital markets for Franklin Templeton.
FLBL has taken in $387 million this year through Nov. 22, while FLHY has had $343 million of net inflows, according to Franklin data.
A couple of factors have propelled the growth of those two ETFs, Mann said.
The two actively managed ETFs, both of which were launched in 2018, now have strong, multi-year track records and are getting to sizes that enable institutions to feel comfortable that they can invest significant capital without having to fear that their investments represent a high percentage of fund assets, he said.
The Franklin Senior Loan ETF returned 13.6% on an NAV basis in 2023, beating the 12.2% return of its average bank loan category peer, according to Morningstar. The fund is up 7.8% this year through Dec. 4, lagging the 7.9% return of its average category peer.
The Franklin High Yield Corporate ETF returned nearly 14% last year, outpacing the 12.1% return of its average high yield bond category peer, according to Morningstar. The fund has returned 9.1% this year through Dec. 4, outpacing the 8.3% return of its average category peer.
