GSY Invesco Ultra Short Duration ETF

Franklin Templeton (BEN) has long been one of the kings of the mutual fund world. The company has over 200 funds, including several with more than $5 billion in assets under management.

However, like many mutual fund companies lately, Franklin Templeton is slowly making its way into the ETF world as well. While others have beaten the California-based company to the finish line for new ETFs, Templeton is in the process of catching up, as evidenced by its recent debut of its first exchange-traded fund, the Franklin Short Duration U.S. Government ETF (FTSD).

This new product will have an actively managed strategy, and will focus on short term bonds for its exposure. And for those intrigued by the Templeton approach and its application in ETF form, we have highlighted some of the key details regarding this new fund below:

FTSD in Focus

The fund looks to invest at least 80% of its net assets in securities issued or guaranteed by the US government, its agencies, or instrumentalities, including government-sponsored entities. This includes treasury bonds, mortgage-backed securities, and even inflation-indexed securities—such as TIPS-- as well (see 3 Bond ETFs Popular in the No Taper Aftermath).

The target duration for the fund looks to be three years or less, keeping the interest rate risk low. And since the fund focuses on government securities, default risk is pretty much non-existent, though there is always a modest inflation risk to consider.

However, this focus on low risk, low duration securities could keep the yield at a minimum, suggesting that investors looking for big payouts might want to go elsewhere. Fortunately the fund is a low cost product though, as its net expense ratio comes in at 30 basis points a year (the gross expense ratio is 43 basis points).

"This actively managed ETF can take advantage of opportunities outside of the index (Barclays U.S. Government 1-3 Year Index), which has a much narrower opportunity set," said the fund’s lead portfolio manager, Roger Bayston, CFA, in a press release. "The fund may be attractive to risk-averse investors who seek monthly income potential and relative price stability across changing interest rate environments, and do not want exposure to corporate credit cycles."

Competition

This move by Franklin Templeton continues the recent trend that investors have seen of large mutual fund companies dipping their toes into the ETF world. The move into the short-duration market has also been a popular one, as this is now a pretty crowded space (read Medium Term Treasury Bond ETF Investing 101).

In fact, there are nearly four dozen other ETFs in the U.S. government bond space, including a few actively managed funds. In this market, products like the Guggenheim Enhanced Short Duration Bond ETF (GSY) and the SPDR SSgA Multi-Asset Real Return ETF (RLY) have attracted a decent following and could pose a threat to Franklin Templeton’s new fund.

Particularly GSY could be a tough foe to battle, as the fund has close to half a billion in assets, and its expense ratio comes in at just 27 basis points. However, it does focus on extremely short-term securities, so it might not be the perfect competitor (see all the ultra-short term bond ETFs here).

Either way, the latest move by another mutual fund giant does suggest that more companies are starting to see the potential in the ETF world. And with Franklin Templeton’s huge following and asset base, there is plenty of reason to believe that this new product can compete in a tough market and attract a decent following of its own.

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