News

Making its debut on 04/26/2017, smart beta exchange traded fund Franklin U.S. Mid Cap Multifactor Index ETF (FLQM) provides investors broad exposure to the Style Box - Mid Cap Blend category of the market.

What Are Smart Beta ETFs?

Market cap weighted indexes were created to reflect the market, or a specific segment of the market, and the ETF industry has traditionally been dominated by products based on this strategy.

Investors who believe in market efficiency should consider market cap indexes, as they replicate market returns in a low-cost, convenient, and transparent way.

If you're the kind of investor who would rather try and beat the market through good stock selection, then smart beta funds are your best choice; this fund class is known for tracking non-cap weighted strategies.

This kind of index follows this same mindset, as it attempts to pick stocks that have better chances of risk-return performance; non-cap weighted strategies base selection on certain fundamental characteristics, or a mix of such characteristics.

This area offers many different investment choices, such as simplest equal-weighting, fundamental weighting and volatility/momentum based weighting methodologies; however, not all of these strategies can deliver superior results.

Fund Sponsor & Index

FLQM is managed by Franklin Templeton Investments, and this fund has amassed over $694.59 million, which makes it one of the average sized ETFs in the Style Box - Mid Cap Blend. This particular fund, before fees and expenses, seeks to match the performance of the LibertyQ U.S. Mid Cap Equity Index.

The LibertyQ U.S. Mid Cap Equity Index includes U.S. mid-capitalization companies that have favorable exposure to four investment style factors - quality, value, momentum and low volatility.

Cost & Other Expenses

Investors should also pay attention to an ETF's expense ratio. Lower cost products will produce better results than those with a higher cost, assuming all other metrics remain the same.

Operating expenses on an annual basis are 0.30% for FLQM, making it on par with most peer products in the space.

It has a 12-month trailing dividend yield of 1.28%.

Sector Exposure and Top Holdings

Even though ETFs offer diversified exposure which minimizes single stock risk, it is still important to look into a fund's holdings before investing. Luckily, most ETFs are very transparent products that disclose their holdings on a daily basis.

Representing 22% of the portfolio, the fund has heaviest allocation to the Industrials sector; Consumer Discretionary and Information Technology round out the top three.

Taking into account individual holdings, Trane Technologies Plc (TT) accounts for about 1.25% of the fund's total assets, followed by Netapp Inc (NTAP) and Monolithic Power Systems Inc (MPWR).

The top 10 holdings account for about 10.93% of total assets under management.

Performance and Risk

So far this year, FLQM has added about 5.76%, and was up about 15.13% in the last one year (as of 07/10/2024). During this past 52-week period, the fund has traded between $40.75 and $53.46.

FLQM has a beta of 1.02 and standard deviation of 16.93% for the trailing three-year period. With about 207 holdings, it effectively diversifies company-specific risk.

Alternatives

Franklin U.S. Mid Cap Multifactor Index ETF is a reasonable option for investors seeking to outperform the Style Box - Mid Cap Blend segment of the market. However, there are other ETFs in the space which investors could consider.

Vanguard Mid-Cap ETF (VO) tracks CRSP US Mid Cap Index and the iShares Core S&P Mid-Cap ETF (IJH) tracks S&P MidCap 400 Index. Vanguard Mid-Cap ETF has $63.46 billion in assets, iShares Core S&P Mid-Cap ETF has $82.14 billion. VO has an expense ratio of 0.04% and IJH charges 0.05%.

Investors looking for cheaper and lower-risk options should consider traditional market cap weighted ETFs that aim to match the returns of the Style Box - Mid Cap Blend.

Bottom Line

To learn more about this product and other ETFs, screen for products that match your investment objectives and read articles on latest developments in the ETF investing universe, please visit Zacks ETF Center.

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Franklin U.S. Mid Cap Multifactor Index ETF (FLQM): ETF Research Reports

NetApp, Inc. (NTAP) : Free Stock Analysis Report

Monolithic Power Systems, Inc. (MPWR) : Free Stock Analysis Report

Trane Technologies plc (TT) : Free Stock Analysis Report

iShares Core S&P Mid-Cap ETF (IJH): ETF Research Reports

Vanguard Mid-Cap ETF (VO): ETF Research Reports

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.