Products February 27, 2020

Investment Product and Service Launches

Franklin Templeton launches new funds, and Wells Fargo incorporates changes to TDFs.

Reported by
Art by Jackson Epstein

Franklin Templeton Adds Growth Fund

Franklin Templeton has introduced its Franklin Focused Growth Fund, which seeks capital appreciation by investing in a concentrated portfolio of approximately 20 to 50 growth stocks.

The fund is managed by San Mateo, California-based portfolio manager Matthew Moberg. This launch brings to market a fund with an established track record; the Advisor share class initially funded in April 2016.

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Franklin Focused Growth Fund seeks to invest predominantly in equity securities of companies that the investment manager believes offer compelling growth opportunities.

“Fundamental research, focused on a long-term view of duration and pace of growth, drive our idea generation. We consider many factors when selecting investments, including a company’s strategic positioning in its industry, its historical and potential growth in free cash flow, and an assessment of the strength and quality of management,” says Moberg, senior vice president and portfolio manager with Franklin Equity Group.

Within this conviction-weighted portfolio, large allocations to growth-oriented sectors such as technology, health care and consumer discretionary are likely. The equity securities in which the fund invests will be predominantly common stock. While the fund primarily invests in large cap companies, it may also invest in small- and mid-capitalization companies. In addition to the fund’s main investments, it may invest a portion (up to 25%) of its net assets in foreign equity securities, including those located in emerging markets.

Franklin Templeton Expands Active ETF Lineup

Franklin Templeton announced the expansion of its active exchange-traded fund (ETF) lineup with the addition of three thematic ETFs: Franklin Disruptive Commerce ETF (BUYZ), Franklin Genomic Advancements ETF (HELX) and Franklin Intelligent Machines ETF (IQM).

The Franklin Disruptive Commerce ETF invests in companies benefitting from or facilitating advancements in emerging areas of the e-commerce space that are facilitating more convenient, customized, secure and time-efficient transactions for both consumers and businesses.

The Franklin Genomic Advancements ETF invests in companies benefitting from or facilitating advancements of new genomic-based research techniques and technologies designed to extend and enhance the quality of human and other life, driven by the advent of cost-effective and rapid gene sequencing.

The Franklin Intelligent Machines ETF invests in companies benefitting from or facilitating advancements of machine learning technologies in areas such as robotics, driverless vehicles and algorithmic data analysis.

All three are listed on the Chicago Board Options Exchange (CBOE) and will be actively managed by portfolio managers Matthew Moberg, CPA, and Joyce Lin, CFA, within Franklin Equity Group, thus not seeking to replicate the performance of a specified index.

“These three new ETFs seek to capture powerful, multi-industry and distinct long-term trends that we believe should have a large impact on our economy and our daily lives,” says Matthew Moberg, portfolio manager with the Franklin Equity Group.

Wells Fargo Incorporates Changes to TDFs

The Wells Fargo Funds Board of Trustees has approved changes to the principal investment strategies of the Wells Fargo Target Date and Dynamic Target Date Funds. These changes will go into effect on or about July 1, although the Factor Enhanced Equity Portfolios will be realigned with their new strategies in a systematic fashion over a period of approximately three months following the effective date.

Each revised portfolio’s risk profile will likely be more similar to its broad market benchmark than it is today, the company says. The realignment of the portfolios will be phased in over a period of approximately three months.

Also effective on or about July 1, Wells Fargo Target Date Funds that either have reached or are nearing their target date (the Today–2030 funds) will begin allocating a portion of their equity exposure to low-volatility equities.

According to Wells Fargo, no changes are being made to the fees, glide path, glide path methodology and underlying fixed-income holdings for the funds. Additionally, the underlying equity portfolios will continue to employ a factor-based investment approach. The portfolios will seek exposure to factors commonly tied to a stock’s potential for enhanced risk-adjusted returns relative to the market, such as value, quality, momentum, size and low volatility.

Wells Fargo says its approach to realigning the underlying equity portfolios over the course of three months is intended to mitigate the point-in-time market risk associated with the overall transition. However, there is no guarantee it will be successful in mitigating risk.

The Dynamic Target Date Funds will continue to use derivatives to implement their volatility management overlay strategy, the firm adds.

Compliance February 27, 2020

Vail Corporation Sued Over Share Class Choices for 401(k) Investments

The lawsuit says the plan ‘inexplicably failed to select these lower fee-charging and better-return producing share classes.’

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The Vail Corporation has been sued for allegedly excessive fees in the Vail Resorts 401(k) Retirement Plan.

According to the complaint, for at least 18 of the 27 mutual fund share classes available within the plan, the same issuer offered a different share class from that selected by the plan that charged lower fees, and consistently achieved higher returns. The plaintiff says the plan “inexplicably failed to select these lower fee-charging and better-return producing share classes.”

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The lawsuit says that at the end of 2018, the plan had 8,276 participants with account balances and $309,822,304 in assets. “At all relevant times, the Vail plan’s fees were excessive when compared with other comparable 401(k) plans offered by other sponsors that had similar numbers of plan participants, and similar amounts of money under management. The excessive fees led to lower net returns than participants in comparable 401(k) plans enjoyed,” the complaint states.

Specifically, the plaintiff or her lawyers used a commercially available program the lawsuit says is commonly used by financial advisers and plan fiduciaries to analyze plans’ performance, comparative costs and other key indicators. The analysis allegedly shows that the administrative fees charged to Vail plan participants are greater than more than 90% of its comparator fees when fees are calculated as cost per participant, or as a percent of total assets. “In 2017, the plan’s expenses amounted to .73% of assets under management, or $314 per participant. The plan’s expenses are nearly double those of the mean among 19 comparator plans with 5-10,000 participants of $179 per participant and .2% of assets under management. Similarly, among a per group of 21 plans with an asset range between $250 million and $500 million, the mean expenses were .43% of assets under management, which again compared unfavorably with the plan’s fees representing .73% of assets,” the lawsuit says.

The complaint also includes a table of the investment options the plan fiduciaries chose and available alternatives they either did not consider or did not choose. The plaintiff says the table provides examples of how Vail breached its fiduciary duties. For example, the data regarding fees and performance taken from Morningstar.com as of December 23, show the T. Rowe Price Retirement 2005 fund used by the plan charged 53 basis points (bps), while the I share class of the same fund charged 41 bps.

“Plaintiff had no knowledge of defendant’s process for selecting investments and monitoring them to ensure they remained prudent. Plaintiff also had no knowledge of how the fees charged to and paid by Vail plan participants compared to any other funds. Nor did plaintiff know about the availability of lower-cost and better-performing (and other essentially identical) investment options that Vail did not offer because Vail provided no comparative information to allow plaintiff to evaluate and compare Vail’s investment options,” the complaint notes.

It alleges Vail caused plan participants to lose millions of dollars of their retirement savings through unreasonable fees and poorly performing investments.

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