Franklin Templeton lists four sector-focused S&P 500 ETFs on the LSE

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Article created by the editorial staff of ETFWorld.co.uk

Rafaelle Lennox Head of UCITS ETF Product Strategy at Franklin Templeton Investments

The products were admitted to trading on Deutsche Börse Xetra on 12 May and will also be traded on Borsa Italiana. These are the Franklin S&P 500 Information Technology UCITS ETF (ticker: USIT), the Franklin S&P 500 Financials UCITS ETF (USFIN), the Franklin S&P 500 Consumer Discretionary UCITS ETF (USDIS) and the Franklin S&P 500 Communication Services UCITS ETF (USTEL).

The benchmarks: the S&P 500 Capped 35/20 family

All four ETFs track indices belonging to the S&P 500 Capped 35/20 family, developed by S&P Dow Jones Indices. The capping mechanism is the distinguishing feature of this series compared to the corresponding free-float-weighted sector indices: the largest constituent by free-float market capitalisation is limited to a maximum weighting of 35%, whilst each other component may not exceed 20%. Rebalancing takes place quarterly, effective after the close of trading on the third Friday of March, June, September and December. Sector classification follows the Global Industry Classification Standard (GICS) of S&P and MSCI.

The choice of benchmarks with explicit caps addresses a specific issue in highly concentrated sectors. In the Information Technology sector of the S&P 500, for example, the top two or three stocks have historically carried disproportionate weight in the uncapped index, with direct implications for the risk profile of an ETF that tracks it. The dual 35/20 limit sets a structural threshold, reducing the weight of individual dominant issuers without disrupting the sector’s overall composition.

The Capped 35/20 series indices were officially launched by S&P Dow Jones Indices in July 2016. The available historical series date back to earlier first-value dates (in the case of IT, to December 1999), but these are calculated via backtesting based on the methodology in force at the actual launch date, and do not constitute the index’s actual performance.

The four ETFs: exposures and characteristics

Franklin S&P 500 Information Technology UCITS ETF

ISIN: IE000EQGURT5 —  TER: 0.09%

The fund tracks the S&P 500 Capped 35/20 Information Technology Sector Index (Net Return) and offers exposure to S&P 500 companies classified in the IT sector according to GICS. The scope includes hardware manufacturers, software developers, semiconductor suppliers and companies active in digital infrastructure. This is the sector that has seen the highest concentrations at index level in recent years, making the capping mechanism particularly relevant for investors seeking intra-sector diversification.

Franklin S&P 500 Financials UCITS ETF

ISIN: IE000KG7KXI7 —  TER: 0.09%

The fund tracks the S&P 500 Capped 35/20 Financials Sector Index (Net Return). The US financial sector comprises commercial and investment banks, insurance companies and diversified financial services firms. It is a sector sensitive to interest rate movements, the evolution of the credit cycle and activity in the capital markets, factors that make it tactically attractive during periods of monetary normalisation or economic recovery.

Franklin S&P 500 Consumer Discretionary UCITS ETF

ISIN: IE000PEYL7P5 — TER: 0.09%

The fund tracks the S&P 500 Capped 35/20 Consumer Discretionary Sector Index (Net Return). The sector comprises companies linked to consumer discretionary spending: large-scale retailers, motor vehicle manufacturers, and leisure and entertainment firms. It is a cyclical sector by definition, with a performance profile linked to trends in household disposable income and consumer confidence.

Franklin S&P 500 Communication Services UCITS ETF

ISIN: IE000TMJDGV1 — TER: 0.09%

The fund tracks the S&P 500 Capped 35/20 Communication Services Sector Index (Net Return). The sector includes traditional telecommunications operators, media groups and digital communication and entertainment platforms. The composition combines defensive components, such as incumbent telecoms, with high-growth components linked to digital services and social media.

Cost structure: TER of 0.09%

All four ETFs have a Total Expense Ratio of 0.09% per annum. The TER includes management fees, fees paid to the investment manager and the custodian, as well as certain other operating expenses. It does not include trading costs (bid-ask spreads and brokerage commissions), which remain the responsibility of the investor. For total annual costs and hypothetical performance scenarios, Franklin Templeton refers to the respective Key Information Documents (KID).

A TER of 9 basis points places these products among the most competitive in the European market for US equity sector ETFs.

The management team

The four ETFs are managed by three portfolio managers from Franklin Templeton’s ETF platform:

• Dina Ting, CFA – Head of Global Index Portfolio Management
• Lorenzo Crosato, CFA – ETF Portfolio Manager
• Dave McGown – ETF Portfolio Manager

The team boasts a combined total of over thirty years’ experience in the asset management sector, with a specific focus on index strategies and ETF portfolio management.

Distribution and legal structure

The four ETFs belong to Franklin Templeton ICAV, a collective investment scheme established under Irish law and notified for distribution in several European Union Member States pursuant to the UCITS Directive.

Distribution is authorised in Austria, Denmark, Finland, France, Germany, Ireland (country of domicile), Italy, Luxembourg, the Netherlands, Spain, Sweden and the United Kingdom.

Source: ETFWorld