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Franklin Templeton To Jump Into Smart Beta ETF Jungle

With just one ETF currently in the market, Franklin Templeton looks to make a bigger splash with a new range of equity ETFs. The company recently filed paperwork with the Securities and Exchange Commission (“SEC”) effectively announcing the firm’s plan to launch a quartet of smart-beta ETFs. Each of the funds in the LibertyQ series will track custom, rules-based indices calculated by MSCI. The four ETFs slated for release are: Franklin LibertyQ International Equity Hedged ETF Franklin LibertyQ Emerging Markets ETF Franklin LibertyQ Global Dividend ETF Franklin LibertyQ Global Equity ETF Multi-Factor Weighting All four ETFs are “multi-factor,” each with a different focus ranging from currency-hedging to dividend-themed. Instead of market cap, investments within the funds will be weighted according to a mix of quality, value, momentum, and low volatility. The Franklin LibertyQ International Equity Hedged ETF will invest in qualifying large- and mid-cap stocks from Europe, Australasia and the Far East, with no individual stock accounting for more than 2% of the fund’s total assets. The fund’s goal is to provide superior risk-adjusted returns compared to the MSCI EAFE (“Europe, Australasia, and the Far East”) Index, which is cap-weighted. The new Emerging Markets ETF is somewhat similar, but with holdings culled from the MSCI Emerging Markets Index. Unlike the International Equity Hedged ETF, though, the Emerging Markets version is not currency-hedged, and its holdings may be more highly concentrated in individual countries, sectors, and individual holdings. Franklin’s new LibertyQ Global Dividend and Global Equity ETFs also follow customized MSCI indices, with the former boasting a dividend theme while the latter seeks to outdo the risk-adjusted performance of the MSCI ACWI (“All Country World Index”). Industry-Wide Movement Barron’s reports that a Franklin Templeton spokesperson wouldn’t offer comment beyond what’s in the SEC filing, but CEO Gregory Johnson said “our intention is to enter the marketplace with smart beta ETFs and rule-based ETFs” back in June, in a post-earnings call with analysts . In doing so, Franklin Templeton joins Legg Mason, John Hancock, and Goldman Sachs as recent boarders to the smart-beta bandwagon. Management fees and ticker symbols for the new funds were not included in the filing.

Multialternative Funds: Best And Worst Of December

Multialternative funds averaged a 1.20% loss in December, dropping their returns for 2015 to -2.39% versus a 2015 loss of 1.79% for the Morningstar Moderate Target Risk TR USD Index (the Index). For the three years ending December 31, the category averaged annualized returns of 1.77% versus 5.60% for the Index, with a beta relative to the Index of 0.51 and a Sharpe ratio of 0.38. On a beta adjusted basis, the funds underperformed the Index with -1.01% annualized alpha over the three-year period. The top-performing multialternative funds and ETFs in December posted gains of as much as 3%, and two of the top-three performers from 2015’s final month had one-year returns of greater than 8%. But of the six funds reviewed this month – the three best and the three worst – only one from each stack launched early enough to have three-year track records, and both underperformed the category averages in terms of returns, Sharpe ratio, and volatility. Click to enlarge Top Performers in December The three best-performing multialternative mutual funds and ETFs in December were: QSPIX and EXD both generated December returns in the +3% range, with QSPIX gaining 3.01% and EXD 2.94% for the month. Both funds were similar in terms of their annual returns, too, with QSPIX gaining 8.76% in 2015 and EXD adding 8.55% for the year. But only EXD, a closed-end fund that launched in June 2010, had three-year data available: its annualized returns stood at an unappealing -1.26%, and its seemingly good-looking -0.30 beta actually resulted in losses, as is evident from the fund’s three-year alpha of +2.86%. In all EXD’s three-year Sharpe ratio was only 0.20, and its three-year standard deviation of 5.87% was the highest of all qualifying funds reviewed this month. AQR’s QSLIX rounds out December’s top three. The fund, which launched September 2014, returned +1.82% in December and +4.02% for the year. Worst Performers in December The three worst-performing multialternative mutual funds and ETFs in December were: SANAX was December’s worst-performing ’40 Act multialternative fund, returning -4.16% for the month. For the year, the fund lost 8.18%, which dropped its three-year annualized gains to just 0.74%. Through December 31, the fund had a three-year beta of 0.52, but generated alpha of -2.12% with 5.21% annualized volatility. As such, its Sharpe ratio for the period stood well below the average for its peers at 0.16. QSTAX and the Transamerica Global Multifactor Macro Fund both launched in 2015 and thus didn’t have three- or even one-year return data as of December 31 of that same year. In December they lost 4.11% and 3.96%, respectively. Past performance does not necessarily predict future results. Jason Seagraves and Meili Zeng contributed to this article.

Courage Required To Ride Out Volatile Markets

By Brian Levitt, Senior Investment Strategist As investors contend with the worst start to a year for the equity markets in recorded history, we focus on one of our favored principles of sound investing: Courage. Winston Churchill once said, “Courage is rightly esteemed to be the first of human qualities because it is the quality which guarantees all others.” Anything in life worth achieving requires consistent courage and fortitude. Investing is no different. Today’s market news and challenges, while daunting and significant, pale in comparison to events of the past such as the Great Depression, two world wars, 9/11, and the 2008 financial crisis. Every generation faces challenges that often appear both unique and overwhelming at the time but when viewed through the sobering lens of history are judged to be neither (Exhibit 1). Markets historically continue their inexorable climb. Why? Because in spite of our challenges and shortcomings, the human race is remarkably resilient and people are masterful inventors and innovators who always strive to create a better place for themselves and society at large. Financial markets have always reflected the improving human condition. Fact: Corrections Happen Often Market corrections happen fairly often, even in good years. 1 From 1981 to 2015 the S&P 500 Index experienced at least a 5% intra-year decline every year but one (1995). The average annual correction over the past 34 years has been 14.4%! In spite of these declines, equities posted positive total returns in 29 of the last 35 years, with an annualized return of more than 11%. As Exhibit 2 illustrates, volatility does not equal loss, unless of course you sell. History shows it doesn’t take very long for market corrections (declines of greater than 10% but less than 20%) to reverse and return to prior peaks. The mean time to market recovery has only been 107 days, 2 or shorter than the National Football League season, which always seems to go by way too fast (Exhibit 3). While true bear markets (declines of greater than 20%) do take longer to recover, it should still be of little consequence to long-term investors. A $10,000 investment made 50 years ago, on January 1, 1966, would be worth over $2.2 million today, even with all the corrections and bear markets of the last half-century. In the words of the Greek philosopher Plato, “Courage is knowing what not to fear.” It remains sound advice for investors, who should have the courage to know not to fear market swings. Compelling wealth management conversations is a program designed to help provide philosophical and historical context and perspective to keep investors “buckled in” and stay the course during uncertain times (and when have times not been uncertain), while providing a framework to help identify the best opportunities going forward. Click to enlarge 1 Source: Bloomberg, 12/31/15. Past performance does not guarantee future results. 2 Source: Ned Davis Research, 12/31/15. Past performance does not guarantee future results. 3 Source: Bloomberg 12/31/15. Past performance does not guarantee future results. Mutual funds are subject to market risk and volatility. Shares may gain or lose value. Carefully consider fund investment objectives, risks, charges, and expenses. Visit oppenheimerfunds.com or call your advisor for a prospectus with this and other fund information. Read it carefully before investing. OppenheimerFunds is not affiliated with Seeking Alpha. ©2016 OppenheimerFunds Distributor, Inc.