Franklin Liberty Splurges On Muni Bond ETF Launches

The ETF industry is growing rapidly, attracting new issuers with novelty. While some issuers are targeting new concepts, others are focusing on age-old themes with a tweak. A good example of this are muni bond ETFs – an old theme – that are now being targeted by Franklin Liberty with a touch of active management.

Inside Franklin Liberty Municipal Bond ETF FLMB

The active fund looks to provide investors with a high level of current income that is exempt from federal income taxes by investing at least 80% of its net assets in municipal securities. The fund charges 30 bps in fees.

“Although the Fund does not have restrictions on the maturity of the securities it may buy, the fund seeks to maintain a dollar-weighted average portfolio maturity of five to 15 years,” as per the prospectus. The product does not have concentration risk as no security occupies more than 1.69%.

Inside Franklin Liberty Intermediate Municipal Opportunities ETF (PA:FLMI)

The active fund also seeks to offer a high level of current income exempt from federal income taxes. It also charges 30 bps in fees. As per the issuer, “the fund invests at least 80% of its net assets in municipal securities whose interest is free from federal income taxes, including the federal alternative minimum tax.” The fund may invest in any rating category muni bond, as per the prospectus (See all Municipal Bond ETFs here).

How Does it Fit in a Portfolio?

Even though Trump intends to cut funds for states, “where local officials don't arrest or detain immigrants living in the country illegally for federal authorities,” and muni bonds were supposed to come under pressure, we do not any see either of these happening soon.

In a likely low tax environment under the Trump administration, these bonds were supposed to lose the appeal of federal tax exemptions. But none of the major reforms have materialized so far in the Trump administration, and muni bond investing has once again gained momentum (read: What Lies Ahead for Muni Bond ETFs in the Trump Era?).

Most importantly, a gradually improving U.S. economy will provide relief to investors as the credit quality of municipal bonds could improve, thereby reducing default rates. Investors should keep in mind that as municipal bonds provide tax-free income, yields from these are lower than other high-yield corporate bonds. However, these are safer than corporate bonds.

Competition

Though there are a host of muni bond ETFs in the space, active ETFs are not a very common concept. So, Franklin Liberty needs to capitalize on that criterion. As of now, iShares National AMT-Free Muni Bond ETF MUB, SPDR Barclays (LON:BARC) Short Term Municipal Bond (AX:SHM) and SPDR Barclays Capital Municipal Bond ETF (BK:TFI) are the highest-asset-grossing ETFs in the space till now.

Investors should also note that being a passive fund, MUB charges 25 bps in fees while FLMB and FLMI charge 30 bps each. In fact, these newbies do not charge highly for their active management. This should help the duo in making a killing.

Want key ETF info delivered straight to your inbox?

Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week. Get it free >>