Franklin Templeton Launches the Franklin Small Cap Enhanced ETF (FSML)

Key Terms

etf financial

An ETF, or exchange-traded fund, is like a basket of different investments such as stocks or bonds that you can buy or sell easily on the stock market, just like a regular share. It allows people to invest in many companies at once, making it a simple way to grow savings without picking individual stocks.

multi-factor model technical

A multi-factor model is a tool that explains and forecasts an investment’s returns by attributing them to several independent drivers — for example company size, profit margins, price trends, or interest-rate sensitivity — rather than blaming a single cause. For investors it matters because it helps separate which specific traits are helping or hurting performance, like reading a recipe to know which ingredients to keep, change or hedge to meet risk and return goals.

derivatives financial

Derivatives are financial contracts whose value depends on the price or performance of another asset, such as a stock, bond, commodity, currency or interest rate. Investors use them to hedge against risk, to speculate on future price moves, or to gain exposure without owning the asset — like buying insurance or placing a leveraged bet — so they can both protect portfolios and magnify gains or losses, affecting risk and market liquidity.

russell 2000 index financial

A stock-market benchmark that tracks about 2,000 small-cap U.S. companies, the Russell 2000 gives a snapshot of how smaller publicly traded firms are performing. Investors use it like a thermometer or yardstick for the small-company segment of the market—funds and portfolio managers compare returns to it, and its movements can signal changes in economic risk appetite or growth expectations; it is weighted so larger small companies have a bigger influence on the index.

Actively managed FSML blends a proprietary multi-factor model with conviction insights from Franklin Templeton’s specialist investment managers

SAN MATEO, Calif.--(BUSINESS WIRE)-- Franklin Templeton, a global investment leader with more than $1.6 trillion in assets under management, today announced the launch of the Franklin Small Cap Enhanced ETF (NYSE Arca: FSML), a new addition to the firm’s expanding active ETF lineup in the United States. FSML seeks long-term capital appreciation using a systematic multi-factor investment framework that incorporates a proprietary conviction factor leveraging the insights from Franklin Templeton’s specialist managers—an approach designed to offer a more informed and adaptive way to access small-cap opportunities.

FSML is managed by Adrian H. Chan, CFA, Eric Johnson, CFA, and Jacqueline Kenney, CFA, members of the Franklin Templeton Investment Solutions (FTIS) team, the firm’s multi-asset and quantitative research unit. The fund invests primarily in equity securities of small-capitalization companies within the Russell 2000 Index universe. Its investment process is built on a proprietary multi-factor model that evaluates companies across quality, value, sentiment, and alternative signals, while incorporating a conviction signal derived from holdings-level views of four Franklin Templeton Specialized Investment Managers: ClearBridge Investments, Franklin Templeton, Royce Investment Partners, and Putnam Investment Management.

A defining feature of the strategy is the proprietary conviction factor, which is derived from benchmark-relative positioning and contributions to risk across the sub-advisors’ small-cap portfolios. These insights are incorporated alongside the insights derived from the other four factors leveraged in the portfolio, creating a more nuanced portfolio construction process than traditional factor-only approaches. The strategy is generally rebalanced monthly to maintain its targeted exposures.

“Small-cap markets are shaped by both broad structural forces and company-specific dynamics,” said Adrian Chan, Head of Quantitative Investments and Portfolio Manager, Franklin Templeton Investment Solutions. “By systematically capturing well-established factor drivers and integrating the forward-looking perspectives of managers who have navigated small-cap cycles for decades, our approach aims to produce more consistent outcomes in a segment of the market where dispersion is high and informed security selection matters.”

“The launch of FSML represents an important milestone in the evolution of our active ETF platform,” said David Mann, Head of ETF Product and Capital Markets at Franklin Templeton. “This strategy is a compelling example of how we can connect the quantitative research expertise of FTIS with the real-world conviction of our active managers. By combining systematic insights with the perspectives of seasoned small-cap specialists, we believe FSML offers investors a differentiated way to access small-cap opportunities.”

Under normal market conditions, the fund invests at least 80 percent of its net assets in equity securities of small-capitalization companies, including derivatives with similar economic characteristics. The fund may invest up to 10 percent of its assets in foreign securities.

For more information, please visit Franklin Templeton ETFs.

About Franklin Templeton

Franklin Resources, Inc. (NYSE: BEN) is a global investment management organization with subsidiaries operating as Franklin Templeton and serving clients in over 150 countries. Franklin Templeton’s mission is to help clients achieve better outcomes through investment management expertise, wealth management and technology solutions. Through its specialist investment managers, the Company offers specialization on a global scale, bringing extensive capabilities in equity, fixed income, alternatives and multi-asset solutions. With more than 1,600 investment professionals, and offices in major financial markets around the world, the California-based company has over 75 years of investment experience and $1.67 trillion in AUM as of November 30, 2025. The Company posts information that may be significant for investors in the Investor Relations and News Center sections of its website, and encourages investors to consult those sections regularly. For more information, please visit investors.franklinresources.com.

Before investing, carefully consider a fund’s investment objectives, risks, charges and expenses. You can find this and other information in each prospectus, or summary prospectus, if available, at www.franklintempleton.com. Please read it carefully.

The fund is newly organized, with a limited history of operations. Equity securities are subject to price fluctuation and possible loss of principal. International investments are subject to special risks including currency fluctuations, social, economic and political uncertainties, which could increase volatility. Because this fund expects to hold a concentrated portfolio of securities, and invests in certain regions or industries, it has increased vulnerability to market volatility. These risk considerations are discussed in the prospectus.

ETFs trade like stocks, fluctuate in market value and may trade at prices above or below the ETFs net asset value. Brokerage commissions and ETF expenses will reduce returns.

ETF shares may be bought or sold throughout the day at their market price, not their Net Asset Value (NAV), on the exchange on which they are listed. Shares of ETFs are tradable on secondary markets and may trade either at a premium or a discount to their NAV on the secondary market

The Fund has filed a registration statement (including a prospectus) with the Securities and Exchange Commission (“SEC”) for the offering to which this communication relates. Before you invest, you should read the prospectus in that registration statement and other documents the Fund has filed with the SEC, when available, for more complete information about the Fund and this offering. You may obtain these documents for free by visiting EDGAR on the SEC website at sec.gov or by visiting franklintempleton.com.

Franklin Distributors, LLC. Member FINRA, SIPC.

NOT FDIC INSURED | NO BANK GUARANTEE | MAY LOSE VALUE.

Copyright © 2025. Franklin Templeton. All rights reserved.

View source version on businesswire.com: https://www.businesswire.com/news/home/20251211899810/en/

Franklin Resources, Inc.

Media Relations: Beverly Khoo (929) 773 4670,

beverly.khoo@franklintempleton.com

Source: Franklin Templeton