Products June 14, 2018

Investment Products and Services Launches

Franklin Templeton creates additional active funds; Hartford Funds presents ETF focused on fixed income; First Trust introduces actively managed ETF; and more.

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Franklin Templeton Introduces Three New ETFs

Franklin Templeton Investments introduced three new exchange-traded funds (ETFs)—Franklin Liberty Senior Loan ETF, Franklin Liberty High Yield Corporate ETF  and Franklin International Aggregate Bond ETF—expanding its lineup of fixed-income active ETFs managed by Franklin Templeton Fixed Income Group. The three ETFs are listed on the Cboe BZX exchange.

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The three new ETFs are managed by group team members who specialize in the asset classes.

Franklin Liberty Senior Loan ETF seeks to provide a high level of current income with a secondary goal of preservation of capital. The fund invests at least 80%% of its net assets in senior loans and investments that provide exposure to senior loans. Senior loans include those referred to as leveraged loans, bank loans and/or floating rate loans. The fund invests predominantly in income-producing senior floating interest rate corporate loans made to or issued by U.S. companies, non-U.S. entities and U.S. subsidiaries of non-U.S. entities. It is managed by Mark Boyadjian, senior vice president, director of floating rate debt and portfolio manager, Madeline Lam, vice president and portfolio manager, and Justin Ma, vice president and portfolio manager.

Franklin Liberty High Yield Corporate ETF seeks to provide a high level of current income with a secondary goal of capital appreciation. The fund invests at least 80%% of its net assets in high-yield corporate debt securities and investments that provide exposure to high-yield corporate debt securities. The fund may enter into certain derivative transactions, principally currency and cross currency forwards and swap agreements, including interest rate and credit default swaps—e.g., credit default index swaps. The fund is managed by Glenn Voyles, senior vice president, director of portfolio management, corporate bonds, and Patricia O’Connor, vice president and portfolio manager.

Franklin International Aggregate Bond ETF seeks to maximize total investment return, consistent with prudent investing, consisting of a combination of interest income and capital appreciation. The fund invests at least 80% of its net assets in bonds and investments that provide exposure to bonds. Bonds include debt obligations of any maturity, such as bonds, notes, bills and debentures. The fund invests predominantly in fixed- and floating-rate bonds issued by governments, government agencies and governmental-related or corporate issuers located outside the U.S. The fund may enter into various currency-related transactions involving derivative instruments, principally currency and cross currency forwards, but it may also use currency futures contracts. It is managed by John Beck, senior vice president, director of fixed income – London, and portfolio manager.

Hartford Funds Presents ETF Focused on Fixed Income

Hartford Funds has launched the Hartford Short Duration exchange-traded fund (ETF), which seeks to provide current income and long-term total return by investing in fixed-income securities. The fund, along with another recently launched fixed-income ETF, the Hartford Schroders Tax-Aware Bond ETF, adds to Hartford Funds’ ETF suite of six fixed-income and seven multifactor ETFs.

“Lower duration and more frequent reinvestment are strong tools to help address rising rates within a fixed-income allocation, and our actively managed Short Duration ETF is designed to deliver both,” said Vernon Meyer, chief investment officer (CIO) of Hartford Funds. “We see fixed-income ETFs as being well-positioned for the current market, with the goal of providing income and stability to help round out a portfolio.”

Sub-advised by Wellington Management Company LLP, the Hartford Short Duration ETF will typically invest in investment grade securities, but can also invest in bank loans and non-investment grade fixed-income securities. The fund will use derivatives—such as Treasury futures and interest rate swaps—to manage its interest rate risk and duration, maintaining a dollar-weighted average duration of less than three years. The fund’s expense ratio is 0.29%.

First Trust Introduces Actively Managed ETF

First Trust Advisors L.P. (First Trust) has launched a new actively managed exchange-traded fund (ETF), the First Trust TCW Unconstrained Plus Bond ETF. The portfolio is sub-advised and managed by TCW Investment Management Co. LLC (TCW). The fund’s managers look for value across a range of global fixed-income market segments seeking to maximize long-term total return.

The fund is managed in an “unconstrained” manner, meaning that its investment universe is not limited to the securities of any particular index and TCW may invest in fixed-income securities of any type or credit quality. Unlike index-based strategies, unconstrained strategies provide a flexible, adaptable, go-anywhere approach. TCW’s fixed-income management philosophy applies a long-term value discipline emphasizing fundamental bottom-up research, which seeks to identify securities that are undervalued and offer a superior risk/return profile.

The fund’s portfolio management team from TCW includes Stephen Kane, group managing director and portfolio manager, Tad Rivelle, chief investment officer (CIO), co-director – fixed income, portfolio manager; Laird Landmann, co-director – fixed income, portfolio manager; and Bryan T. Whalen, CFA, group managing director, portfolio manager. The portfolio managers are jointly responsible for the day-to-day management of the fund. 

ABG and Russell Investments’ Merge for Retirement Account Program

Alliance Benefit Group (ABG) has announced its alliance with Russell Investments to offer Russell’s Adaptive Retirement Accounts (ARA) program. Along with providing the managed accounts program to its clients, ABG will partner with Russell’s defined contribution (DC) and intermediary sales teams to jointly promote the ARA program to the financial advisory community.

Don Mackanos, president of ABG, says, “ABG is thrilled to offer Russell Investments’ ARA program. We strongly believe managed accounts will be a competitive differentiator for many years because they can provide better participant outcomes than target date funds [TDFs]. This program is well-positioned from a pricing and feature standpoint, and is fully integrated with industry-leading recordkeeping software vendors such as the Relius platform. The ARA program, coupled with Russell Investments’ distribution through financial advisers, supported by ABG member firms for their administration and recordkeeping services, makes this a home run in the market.”

Andrew Scherer, senior director of defined contribution for Russell Investments, says, “We have longstanding relationships with many of the ABG member firms and look forward to partnering with them to capitalize on the benefits of our ARA program. A lot of time and effort went into building this program, and we look forward to a very successful rollout.”

Scherer adds that ARA’s benefits include a customized asset allocation designed to increase the likelihood of participants achieving an appropriate level of retirement income based on their needs. In addition, ARA delivers its asset allocation by leveraging the plan’s core menu, a process that accentuates a financial adviser’s value in selecting and monitoring a plan’s investments.

The alliance is expected to begin in the summer.

GSAM Builds Large Cap Equity ETF

Goldman Sachs Asset Management (GSAM) has announced the launch of JUST, an exchange-traded fund (ETF) that seeks to provide broad exposure to U.S. large-cap equities, with a focus on companies that demonstrate just business behavior, as measured by JUST Capital. The ETF seeks to track the JUST U.S. Large Cap Diversified Index (the Index), constructed by JUST Capital.

JUST Capital is an independent nonprofit that uses data and markets to promote positive change in corporate behavior. To create its rankings and the index, JUST Capital conducts an annual survey of the American public and then analyzes 120,000 data points across 85 unique metrics to score companies based on how they perform on the key issues prioritized by the public.

The index is designed to provide the broad market exposure of the Russell 1000 Index, while featuring only companies with above-average scores across major environmental, social and governance (ESG) issues of interest to the American people.

Compliance June 14, 2018

PSNC 2018: Washington Update

Plan sponsors can anticipate additional guidance and legislation on a number of retirement plan issues.

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Jodi Epstein, a partner in Ivins, Phillips & Barker’s employee benefits practice, and David Levine, principal at Groom Law Group, Chartered, explain retirement-related developments in Washington, D.C., and state capitals across the U.S. at the PLANSPONSOR National Conference in Washington, D.C.

The first topic discussed was the status of the fiduciary rule. In March, the 5th Circuit Court of Appeals, in New Orleans, vacated the fiduciary rule in a 2-1 decision. Levine said the Securities and Exchange Commission (SEC) is confronting  some of the same issues through its own “Regulation Best Interest. The SEC’s release of a thousand-page conflict of interest rulemaking package, applying to all brokers and investment advisers whether they serve retirement plans or retail clients, is being hailed as a victory by some and a deep disappointment by others; either way, it’s the start of another long chapter in the epic industry battle over federal conflict of interest regulations.

Plan sponsors need to be clear on whether their recordkeeper is acting as a fiduciary. “Whichever role they are playing is OK,” says Levine, “but it is the plan sponsor’s role to monitor [it] and keep track of how many participants they are counseling, for possible litigation purposes.”

Epstein discussed how the Tax Cuts and Jobs Act of 2017 has inadvertently eliminated the use of hardship withdrawals in many situations involving the repair of damage to a principal residence in safe harbor plans. In addition, being considered is elimination of the six-month suspension of participant deferrals when taking a hardship withdrawal. Epstein said, “Hopefully the Treasury will issue some guidance on the topic. In the meanwhile, if need be, plan sponsors should amend their plan documents to reflect changes once they are set.”


Another unintended consequence of last year’s tax bill was a new definition of the term “compensation.” For instance, company reimbursement for moving expenses is now considered compensation while it had not been in the past. Plan documents must be amended to reflect changes such as these; plan sponsors can get such amendments from protocol books.

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When it comes to the long list of examples of retirement reform legislation circulating around Congress, Epstein and Levine said they are most closely following the effort to expand access to so-called “open multiple employer plans,” or open MEPs. Both also warned that there is some increasing chatter on the Hill to the effect that another round of tax reform could be high on the agenda for the remainder of the year—and, as a part of this, there could be another round of debate about the “Rothification” of 401(k) plans.


Another topic discussed in the industry is environmental, social and governance (ESG) investments and whether plan sponsors should use these funds on their plan menu. In a new Field Assistance Bulletin (FAB), the DOL clarified how ESG investment considerations should be made under the Employee Retirement Income Security Act (ERISA), if ESG policies are included in investment policy statements (IPSs) and when choosing qualified default investment alternatives (QDIAs).


According to Epstein, the concept has been around for a long time and there has been competing guidance. “This guidance has not changed anything but instead set a new, less positive tone. ESG is used most often in government plan and nonprofit plans if it fits with their missions. But, as with all plan investments, Epstein says, “plan sponsors need to care about returns and be prudent in their decisions.” 


Levine cautioned that the Department of Labor (DOL) and IRS auditors are diving deep into plan sponsor policies on missing participants. He said, they have upped their investigations on the retirement side.


As the DOL stopped its letter-forwarding service to help locate missing plan participants, in 2012, both attorneys stressed that it is up to plan sponsors to have a specific process in place and to show evidence of their efforts to find participants no matter what the process. Both the IRS and the Pension Benefit Guaranty Corporation (PBGC) are also on the missing participants trail. “You need to have a process for finding beneficiaries, as well,” Levine noted. “We highly recommend rechecking your fiduciary breach insurance coverage, to see whether it covers this topic because it should.”

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