Lotfi Ladjemi, the senior ETF sales specialist for the UK and Ireland for Franklin Templeton, discusses with this news service the outlook for exchange-traded-funds in 2023. 

There has been a lot of growth in the ETF industry recently, and Lotfi Ladjemi from Franklin Templeton is optimistic about the outlook for 2023.

“ETFs worked well last year in a volatile market and we see continued demand going forward,” he told this news service in an exclusive interview. 

An ETF is a basket of securities such as stocks and/or bonds that are held in a single fund that is bought or sold on an exchange. The market has surged in recent years as investors and advisors have sought lower-cost ways to obtain market exposure. (See related thoughts from the editor here about these "passive" entities.)

In particular, there has been increased demand for ESG focused funds from our clients, he added. In response to this, the firm launched its Franklin MSCI Emerging Markets Paris Aligned Climate UCITS Exchange-Traded Fund. This sustainable ETF, which is classified as Article 8 under the EU Sustainable Finance Disclosure Regulation, is the fourth Paris Aligned Climate ETF in the firm’s range, joining its China, Europe and US funds. The firm also has a Franklin Euro Green Bond UCITS ETF, which is classified under Article 9 of the SFDR Regulation.

Ladjemi said the firm plans to grow its ETF business in Europe and may well increase its fixed income ETF range, to complement the Euro Green Bond UCITS ETF. “We want to be a top 10 ETF provider in Europe,” he added. 

As part of its expansion plans in the European ETF market and in response to growing client demand for ETF solutions, the firm registered all 21 UCITS ETFs from its Franklin Templeton ICAV range on Friday for Luxembourg investors. The 21 UCITS ETFs span a spectrum of sustainable, passive, actively managed fixed income ETFs, smart beta and thematic products. 

Guillaume Dambrine, senior ETF sales specialist for France, Belgium and Luxembourg at Franklin Templeton, said: “Registering our UCITS ETF range in Luxembourg is an important step for us given the vast potential of its ETF market, which has been growing in line with the European ETF market at a CAGR of 29 per cent since 2008. Luxembourg is one of the major European wealth and asset management markets with one of the biggest concentration of funds of funds in Europe. ETFs are particularly well suited for fund of fund vehicles as they enable tactical and precise allocations, among all asset classes and regions, at a competitive cost, thus making it appealing for us to expand in this market."

Emerging markets
Ladjemi is particularly optimistic about the outlook for single country emerging market equity ETFs, believing that they are likely to see accelerated AUM growth. After a challenging year, he thinks that 2023 could mark a period of recovery for emerging markets. 

Valuations are currently cheap across emerging market equities and continue to offer value as expectations for easing inflation levels point to potential US dollar weakening amid a Fed pivot. Franklin Templeton’s head of EMEA ETF Capital Markets, Jason Xavier, believes that selecting countries that are “US friendly” and can benefit from innovation-leading sectors, such as technology and healthcare, could pave the way. That, coupled with exposure to markets that can take manufacturing market share from China, appear attractive to Franklin Templeton’s EMEA ETF team. As such, the team favours South Korea, Taiwan and India over a broad allocation to emerging markets.

Amongst others, it manages the Franklin Emerging Markets UCITS ETF, Franklin FTSE China UCITS ETF and Franklin FTSE India UCITS ETF.

Xavier thinks that multi-factor smart beta exchange-traded funds, especially those focused on quality and income-generating strategies, should also outperform their relative assets under management growth from this year as the decade of “cheap” money and record-low interest rates has passed.

Fixed income and dividend ETFs will also be asset-gathering winners in 2023, Xavier added. He believes that optimising yields and income will feature heavily in portfolio construction next year. Consequently, he believes that global and regional dividend ETFs, especially those that also screen for quality and value from a fundamental stock-picking point of view, will gather good inflows this year.