Franklin Disruptive Commerce ETF
		Franklin Dynamic Municipal Bond ETF
		Franklin Exponential Data ETF
		Franklin Genomic Advancements ETF
		Franklin High Yield Corporate ETF Formerly, Franklin Liberty High Yield Corporate ETF
		Franklin Intelligent Machines ETF
		Franklin International Aggregate Bond ETF Formerly, Franklin Liberty International Aggregate Bond ETF
		Franklin Investment Grade Corporate ETF
		Formerly, Franklin Liberty Investment Grade Corporate ETF
		Franklin Municipal Green Bond ETF
		Formerly Franklin Federal Tax-Free Bond ETF

Franklin Senior Loan ETF Formerly, Franklin Liberty Senior Loan ETF

Franklin Systematic Style Premia ETF Formerly, Franklin Liberty Systematic Style Premia ETF

Franklin U.S. Core Bond ETF Formerly Franklin Liberty U.S. Core Bond ETF

Franklin U.S. Low Volatility ETF Formerly, Franklin Liberty U.S. Low Volatility ETF

Franklin U.S. Treasury Bond ETF Formerly, Franklin Liberty U.S. Treasury Bond ETF

Franklin Ultra Short Bond ETF Formerly, Franklin Liberty Ultra Short Bond ETF

Franklin Disruptive Commerce ETF			2
Franklin Dynamic Municipal Bond ETF			10
Franklin Exponential Data ETF			16
Franklin Genomic Advancements ETF			24
Franklin High Yield Corporate ETF			31
Franklin Intelligent Machines ETF			38
Franklin International Aggregate Bond ETF			46
Franklin Investment Grade Corporate ETF			53
Franklin Municipal Green Bond ETF			60
Franklin Senior Loan ETF			66
Franklin Systematic Style Premia ETF			73
Franklin U.S. Core Bond ETF			81

Franklin U.S. Low Volatility ETF			88
Franklin U.S. Treasury Bond ETF			95
Franklin Ultra Short Bond ETF			102
Financial Highlights and Schedules of Investments			109
Financial Statements			205
Notes to Financial Statements			221
Report of Independent Registered Public Accounting Firm			247
Tax Information			249
Board Members and Officers			251
Shareholder Information			254

Not FDIC Insured				| May Lose Value				| No Bank Guarantee

This annual report for Franklin Disruptive Commerce ETF covers the fiscal year ended March 31, 2023.

Your Fund’s Goal and Main Investments

The Fund seeks capital appreciation. Under normal market conditions, the Fund invests at least 80% of its net assets in equity securities, predominantly common stock, of companies that are relevant to the Fund’s investment theme of disruptive commerce. These companies include those that are focused on, or that the investment manager believes will benefit from, electronic commerce, auctions, the sharing economy, electronic payment capabilities, drop shipping, direct marketing, significant decreases in transport and delivery costs and other activities or developments, as outlined in more detail in the Prospectus.

Performance Overview

During the 12-month period, the Fund posted cumulative total returns of -22.48% based on market price and -22.34% based on net asset value (NAV). In comparison, the Russell 3000^® Index, which measures the performance of the largest 3,000 U.S. companies representing the majority of the U.S. market’s total capitalization, posted a -8.58% cumulative total return for the same period.¹ You can find more of the Fund’s performance data in the Performance Summary beginning on page 6.

Performance data represent past performance, which does not guarantee future results. Investment return and principal value will fluctuate, and you may have a gain or loss when you sell your shares. Current performance may differ from figures shown. For most recent month-end performance, go to franklintempleton.com or call (800) 342-5236.

Economic and Market Overview

U.S. equities, as measured by the Standard & Poor’s^® 500 Index (S&P 500^®), posted a -7.73% total return for the 12 months ended March 31, 2023.¹ High inflation, rising interest rates and geopolitical instability contributed to a sharp

decline in equity prices. Consumer spending continued to rise, but deteriorating financial conditions and investors’ expectations for slower growth pressured equity markets.

Continued supply-chain disruptions, strong consumer demand and volatile energy prices drove inflation higher. Russia’s invasion of Ukraine also disrupted financial markets and led to a rise in oil and commodity prices early in the period. Inflation peaked at 9.1% in June 2022, the highest annual rate since 1981, before gradually sliding to a low of 6% in February 2023. The labor market remained strong amid a high level of nominal growth, which sent the U.S. unemployment rate down to a historic 54-year low of 3.4% in January 2023 before ending the period at 3.5%.

U.S. gross domestic product grew in the second half of 2022 after modestly contracting in the first half of the year. Rising consumer spending and increased exports amid declining inflation led to solid economic growth in the final two quarters of 2022. However, rising interest rates translated to higher borrowing costs for individuals and businesses, which dampened economic activity, especially in the housing and financial markets over the period.

In an effort to control inflation, the U.S. Federal Reserve (Fed) rapidly restricted monetary policy during the period. The Fed raised the federal funds target rate eight times to end the period at a range of 4.75%–5.00%, pushing borrowing costs to their highest levels since 2007. The interest-rate hikes included four successive 75 basis point increases at its June, July, September and November 2022 meetings and smaller increases at its remaining meetings during the period. At its March 2023 meeting, the Fed said it would continue to reduce bond holdings, but departed from previous statements by softening its firm outlook on future rate hikes. Additionally, Fed Chair Jerome Powell said the central bank most likely would not cut rates in 2023.

Portfolio Composition
3/31/23
		% of Total Net Assets
Internet & Direct Marketing Retail			26.7%
IT Services			19.9%
Trading Companies & Distributors			9.1%
Software			7.7%
Hotels, Restaurants & Leisure			6.3%
Ground Transportation			5.2%
Consumer Staples Distribution & Retail			4.7%
Entertainment			3.9%
Commercial Services & Supplies			3.3%
Professional Services			3.1%
Interactive Media & Services			2.3%
Diversified REITs			2.0%
Other			3.3%
Other Net Assets			2.5%

 

Top 10 Holdings
3/31/23
Company Sector/Industry		% of Total Net Assets
Amazon.com, Inc. Internet & Direct Marketing Retail			7.8%
Shopify, Inc. Interactive Media & Services			5.1%
WW Grainger, Inc. Trading Companies & Distributors			4.8%
Costco Wholesale Corp. Consumer Staples Merchandise Retail			4.7%
MercadoLibre, Inc. Internet & Direct Marketing Retail			4.4%
Fastenal Co. Trading Companies & Distributors			4.3%
Adyen NV Data Processing & Outsourced Services			4.3%
Uber Technologies, Inc. Trucking			4.0%
DoorDash, Inc. Internet & Direct Marketing Retail			3.5%
Etsy, Inc. Internet & Direct Marketing Retail			3.4%

Investment Strategy

We seek to identify, using our own fundamental, bottom-up research and analysis, companies positioned to capitalize on disruptive innovation in or that are enabling the further development of the disruptive commerce themes in the

markets in which they operate. Our internal research and analysis leverages insights from diverse sources, including external research, to develop and refine its investment theme and identify and take advantage of trends that have ramification to individual companies or entire industries. We evaluate market segments, products, services and business models positioned to benefit significantly from disruptive innovations in commerce relative to broad securities markets, and we seek to identify the primary beneficiaries of new trends or developments in commerce. We may invest in companies in any economic sector or of any market capitalization and may invest in companies both inside and outside of the U.S., including those in developing or emerging markets. Although we may invest across economic sectors, we expect to concentrate our investments in consumer discretionary-related industries.

Manager’s Discussion

The 12 months under review was a tale of two halves for the Fund: Although the final six months of the reporting period resulted in solid overall gains, it was not enough to compensate for the steep losses incurred from April through September 2022.

After declining more sharply than the broader equity market averages in the first nine months of 2022 as investors appeared to brace for a possible recession, stocks related to e-commerce businesses began to stage a partial recovery in October. Throughout the year under review, many e-commerce companies began to reduce staff, cut back on technology spending and other capital-intensive projects, and otherwise sought to right-size their operations to better suit changing market conditions at the end of a prolonged demand boom. Digital payment platform businesses, meanwhile, contended with the specter of waning transaction volumes. The latest data revealed that consumer spending has not collapsed in the current environment, but consumers are allocating more discretionary dollars toward services such as entertainment and travel, at least partially reversing the merchandise-heavy tilt that was in place over the past two-and-a-half years. In select categories, such as clothing, the percentage of sales made online reverted to where it was before the pandemic, according to some estimates. And for the past six quarters through December 2022, online growth has trailed the sales gains of the overall retail industry.

The portfolio held exposures to nine different equity sectors, eight of which produced negative absolute returns, while industrial sector stocks combined for a small contribution that had a negligible impact on overall performance. The bulk

of the decline occurred in the consumer discretionary, information technology (IT), communication services and financials sectors, which on average comprised roughly two-thirds of the portfolio’s overall composition.

Widespread declines were evident in the consumer discretionary sector, where e-commerce names such as Amazon.com (focused on e-commerce, cloud computing, online advertising, digital streaming and artificial intelligence), online fashion retailer Revolve Group, and vacation rental and short-term homestays broker Airbnb were standout detractors. All of our smaller positions in the household durables; and textiles, apparel and luxury goods industries also posted large losses, owing mostly to a steep selloff in LoveSac, which was liquidated before period-end.

In the IT sector, nearly all holdings suffered double-digit percentage declines, including major detractors such as BILL Holdings (cloud-based back-office software) and Unity Software (video game development platform provider) in the software industry, along with Shopify, an e-commerce platform for online stores and retail point-of-sale systems, in the IT services industry. The stock market headwinds were also quite strong in the tech-adjacent communication services sector, where eight out of 10 related holdings sold off. Interactive media and services providers were an area of acute weakness as the group was led lower by ZoomInfo Technologies, which provides marketing software and data solutions, and which lost more than half of its equity value during the year under review.

Late in the year, many of our holdings tied to e-commerce payments and online transactions were reclassified as financial services companies, where previously such fintech companies had been grouped with IT services industry names. Most of these holdings fared poorly, with our absolute returns curbed foremost by depreciation in Dutch e-payment platform provider Adyen and dLocal, which enables cross-border payments connecting global merchants to emerging markets. Consumer finance stocks such as Upstart Holdings (an AI-enabled peer-to-peer lending platform) were also weak, and we eventually divested the Fund’s holdings in these companies by year-end.

To a lesser extent, consumer staples were also a hindrance as all related stocks sold off, including Costco Wholesale and Freshpet, the latter of which makes premium dog and cat food. The Fund’s health care holdings were limited to a solitary position in Figs, which sells medical uniforms and apparel, and which shed most of its equity value before it

CFA^® is a trademark owned by CFA Institute.

was eliminated from the portfolio. ProLogis, a real estate investment trust that specializes in transportation logistics facilities that are a crucial part of the supply chain, was our sole detractor in the real estate sector, while materials sector returns were pressured foremost by a modest selloff in Packaging Corporation of America.

In terms of what aided Fund performance, there were a handful of companies that posted solid gains during the year, with positive overall results in the industrials sector led by gains in industrial supply company WW Grainger, online vehicle auction and remarketing services provider Copart, and freight shipping and logistics company Old Dominion Freight Line.

The rest of the notable contributors helped decrease the overall declines in other sector allocations, including a few e-commerce companies such as Latin America-based MercadoLibre and China-based Alibaba Group Holding (purchased during the period), which aided results in the consumer discretionary sector along with Booking Holdings, an online travel fare aggregator and travel fare metasearch engine provider.

Similar to Alibaba, we initiated a new position in another Chinese company with the purchase of Tencent Holdings in the interactive media and services industry, which went on to rally solidly through period-end and benefited returns in the communication services sector. Elsewhere in the sector, Netflix (also purchased during the period) lent modest support to our otherwise poor results in the entertainment industry. Mixed results in the IT sector, meanwhile, were supported by several software holdings, including key contributor Descartes Systems Group, which specializes in cloud-based logistics and supply-chain management solutions.

Although most payment processing companies dampened absolute returns, both Visa and Mastercard showed resilience and posted small gains within the group. Across the rest of the portfolio, the contributors were generally minor and had little impact in reversing the widespread declines outlined above.

Thank you for your participation in Franklin Disruptive Commerce ETF. We look forward to serving your future investment needs.

Matthew J. Moberg, CPA

Lead Portfolio Manager

Kelly Rogal, CFA

Portfolio Manager

 

The foregoing information reflects our analysis, opinions and portfolio holdings as of March 31, 2023, the end of the reporting period. The way we implement our main investment strategies and the resulting portfolio holdings may change depending on factors such as market and economic conditions. These opinions may not be relied upon as investment advice or an offer for a particular security. The information is not a complete analysis of every aspect of any market, state, industry, security or the Fund. Statements of fact are from sources considered reliable, but the investment manager makes no representation or warranty as to their completeness or accuracy. Although historical performance is no guarantee of future results, these insights may help you understand our investment management philosophy.

This annual report for Franklin Dynamic Municipal Bond ETF covers the fiscal year ended March 31, 2023.

Your Fund’s Goal and Main Investments

The Fund seeks to provide a high level of current income that is exempt from federal income taxes, including the federal alternative minimum tax, by normally investing at least 80% of its net assets in municipal securities whose interest is free from such taxes.¹ The Fund seeks to maintain a dollar-weighted average portfolio maturity (the time in which the debt must be repaid) of three to 10 years, and may invest in municipal securities in any rating category by U.S. nationally recognized rating services (or unrated or short-term rated securities of comparable quality), including securities rated below investment grade and securities of issuers that are, or are about to be, involved in reorganizations, financial restructuring, or bankruptcy.

Performance Overview

During the 12-month period, the Fund posted cumulative total returns of -0.69% based on market price and -0.82% based on net asset value (NAV). In comparison, the Bloomberg Municipal 1-15 Year Index, which is a subset of the Bloomberg Municipal Bond Index (a market value-weighted index of tax-exempt, investment-grade municipal bonds with maturities of one year or more) posted a +1.61% cumulative total return for the same period.² You can find more of the Fund’s performance data in the Performance Summary beginning on page 12.

Performance data represent past performance, which does not guarantee future results. Investment return and principal value will fluctuate, and you may have a gain or loss when you sell your shares. Current performance may differ from figures shown. For most recent month-end performance, go to franklintempleton.com or call (800) 342-5236.

Municipal Bond Market Overview

During the 12 months ended March 31, 2023, the U.S. Federal Reserve (Fed) continued to tighten monetary policy as it tried to get inflation under control without tipping the economy into recession. After several hikes of 75 basis points (bps), the Fed slowed the pace of tightening to 50 bps in December 2022, followed by two 25-bp increases in February and March 2023. This last decision came in the face of regional banking sector turmoil, though fears of widespread contagion quickly abated.

The municipal bond (muni) market witnessed a very challenging year in 2022, primarily driven by the Fed’s monetary policy tightening. High levels of uncertainty led to significant outflows from muni retail vehicles. The first quarter of 2023 saw a reversal of this trend as investors looked for high-quality alternatives amid market volatility. Inflows to munis were met with restricted new issuance, resulting in positive absolute returns year-to-date. Credit fundamentals remained strong, as many muni issuers benefited from federal aid received during the COVID-19 crisis and from the subsequent economic recovery.

For the 12-month period, U.S. fixed income sectors saw better performance relative to equities, as measured by the Standard & Poor’s^® 500 Index, which posted a -7.73% total return.² Investment-grade munis, as measured by the Bloomberg Municipal Bond Index, posted a +0.26% total return, while U.S. Treasuries, as measured by the Bloomberg U.S. Treasury Index, posted a -4.51% total return.² Investment-grade corporate bonds, as measured by the Bloomberg U.S. Corporate Investment Grade Index, posted a -5.55% total return.²

Portfolio Composition
3/31/23
		% of Total Investments
Industrial Development Revenue and Pollution   Control			32.36%
Special Tax			20.15%
Health Care			14.01%
Education			8.02%
Transportation			5.75%
Housing			5.07%
Local			4.56%
Lease			2.59%
State			2.21%
Other			2.07%
Cash			1.78%
Utilities			1.30%
Refunded			0.13%

Investment Strategy

We select securities that we believe will provide the best balance between risk and return within the Fund’s range of allowable investments and we typically invest with a long-term time horizon. This means we generally hold securities in the Fund’s portfolio for income purposes, although we may sell a security at any time if we believe it could help the Fund meet its goal. With a focus on income, individual securities are considered for purchase or sale based on various factors and considerations, including credit profile, risk, structure, pricing, portfolio impact, duration management, restructuring, opportunistic trading and tax loss harvesting opportunities. When selecting securities for the Fund’s portfolio, we may consider existing market conditions, the availability of lower-rated securities, and whether the difference in yields between higher and lower-rated securities justifies the higher risk of lower-rated securities. The Fund is an actively managed exchange-traded fund (ETF) that does not seek to replicate the performance of a specified index.

Manager’s Discussion

During the 12-month period, the portfolio management team invested across the entire quality spectrum, including below investment-grade bonds, to achieve our objective of maximizing income for our investors. As credit spreads fluctuate, we will continue to seek the best opportunities in higher and lower quality securities. The yield curve flattened significantly over the reporting period, and the team focused

on yield curve positioning in an effort to help our investors achieve high levels of tax-free income over the long term.

Thank you for your participation in Franklin Dynamic Municipal Bond ETF. We look forward to serving your future investment needs.

 

 

The foregoing information reflects our analysis, opinions and portfolio holdings as of March 31, 2023, the end of the reporting period. The way we implement our main investment strategies and the resulting portfolio holdings may change depending on factors such as market and economic conditions. These opinions may not be relied upon as investment advice or an offer for a particular security. The information is not a complete analysis of every aspect of any market, state, industry, security or the Fund. Statements of fact are from sources considered reliable, but the investment manager makes no representation or warranty as to their completeness or accuracy. Although historical performance is no guarantee of future results, these insights may help you understand our investment management philosophy.

This annual report for Franklin Exponential Data ETF covers the fiscal year ended March 31, 2023.

Your Fund’s Goal and Main Investments

The Fund seeks capital appreciation. Under normal market conditions, the Fund invests at least 80% of its net assets in equity securities, predominantly common stock, of companies that are relevant to the Fund’s investment theme of exponential data. These companies include those that we believe are substantially focused on and/or are expected to substantially benefit from the use of large data sets and/or growth of data, including systems, services, hardware, software and other digital and physical infrastructure related to data products or services, as outlined in more detail in the Prospectus.

Performance Overview

During the 12-month period, the Fund posted cumulative total returns of -26.17% based on market price and -25.99% based on net asset value (NAV). In comparison, the Russell 3000^® Index, which measures the performance of the largest 3,000 U.S. companies representing the majority of the U.S. market’s total capitalization, posted a -8.58% cumulative total return for the same period.¹ You can find more of the Fund’s performance data in the Performance Summary beginning on page 20.

Performance data represent past performance, which does not guarantee future results. Investment return and principal value will fluctuate, and you may have a gain or loss when you sell your shares. Current performance may differ from figures shown. For most recent month-end performance, go to franklintempleton.com or call (800) 342-5236.

Economic and Market Overview

U.S. equities, as measured by the Standard & Poor’s^® 500 Index (S&P 500^®), posted a -7.73% total return for the 12 months ended March 31, 2023.¹ High inflation, rising interest rates and geopolitical instability contributed to a sharp decline in equity prices. Consumer spending continued to rise, but deteriorating financial conditions and investors’ expectations for slower growth pressured equity markets.

Continued supply-chain disruptions, strong consumer demand and volatile energy prices drove inflation higher. Russia’s invasion of Ukraine also disrupted financial markets and led to a rise in oil and commodity prices early in the period. Inflation peaked at 9.1% in June 2022, the highest annual rate since 1981, before gradually sliding to a low of 6% in February 2023. The labor market remained strong amid a high level of nominal growth, which sent the U.S. unemployment rate down to a historic 54-year low of 3.4% in January 2023 before ending the period at 3.5%.

U.S. gross domestic product grew in the second half of 2022 after modestly contracting in the first half of the year. Rising consumer spending and increased exports amid declining inflation led to solid economic growth in the final two quarters of 2022. However, rising interest rates translated to higher borrowing costs for individuals and businesses, which dampened economic activity, especially in the housing and financial markets over the period.

In an effort to control inflation, the U.S. Federal Reserve (Fed) rapidly restricted monetary policy during the period. The Fed raised the federal funds target rate eight times to end the period at a range of 4.75%–5.00%, pushing borrowing costs to their highest levels since 2007. The interest-rate hikes included four successive 75 basis point increases at its June, July, September and November 2022 meetings and smaller increases at its remaining meetings during the period. At its March 2023 meeting, the Fed said it would continue to reduce bond holdings, but departed from previous statements by softening its firm outlook on future rate hikes. Additionally, Fed Chair Jerome Powell said the central bank most likely would not cut rates in 2023.

Portfolio Composition
3/31/23
		% of Total Net Assets
Software			49.3%
IT Services			15.2%
Diversified REITs			11.3%
Capital Markets			6.9%
Interactive Media & Services			5.9%
Wireless Telecommunication Services			3.3%
Communications Equipment			3.0%
Electronic Equipment, Instruments & Components			2.0%
Other			1.9%
Short-Term Investments & Other Net Assets			1.2%

 

Top 10 Holdings
3/31/23
Company Sector/Industry		% of Total Net Assets
Microsoft Corp. Information Technology			7.2%
MongoDB, Inc. Information Technology			5.3%
Equinix, Inc. Real Estate			4.7%
Palo Alto Networks, Inc. Information Technology			4.6%
ServiceNow, Inc. Information Technology			4.4%
Cloudflare, Inc., Class A Information Technology			4.3%
Snowflake, Inc., Class A Information Technology			4.2%
Alphabet, Inc., Class A Communication Services			4.1%
Datadog, Inc., Class A Information Technology			4.0%
SBA Communications Corp. Real Estate			3.3%

Investment Strategy

We seek to identify, using our own fundamental, bottom-up research analysis, companies positioned to capitalize on innovations in or that are enabling the further development of the exponential data theme in the markets in which they operate. Our internal research and analysis leverages insights from diverse sources, including external research, to develop and refine its investment and identify and take advantage of trends that have ramifications for individual

companies or entire industries. In analyzing investment opportunities, we also evaluate market segments, products, services and business models positioned to benefit significantly from innovations in data products or services or the commercialization of data relative to the broad equities market, and we seek to identify the primary beneficiaries of new trends or developments in exponential data. We may invest in companies in any economic sector or of any market capitalization and may invest in companies both inside and outside of the U.S., including those in developing or emerging markets. Although we may invest across economic sectors, we expect to concentrate our investments in information technology-related industries.

Manager’s Discussion

During the 12 months under review, the Fund was invested in 13 different industries, with just four of them adding meaningfully to the Fund’s absolute returns. This endpoint result marked an improvement from the midpoint of the annual period, when nearly all the portfolio’s individual stock holdings were net detractors in a broader bear market environment (while the few outliers to the upside were inadequate as they had no material impact on returns). Interest-rate hikes and global macroeconomic conditions applied downward pressure on numerous companies held by the Fund, and several of them compounded those challenges with disappointing earnings reports and forward guidance. Despite the overall gains made from the October low point through period-end, the Fund was unable to recover most of the prior losses.

Three of the Fund’s largest industry allocations—software, information technology (IT) services, and interactive media and services—comprised nearly 70% of its total net assets when combined, and they were also the biggest detractors of the year. Most software holdings posted steep double-digit percentage losses with Datadog (cloud-based “observability” and analytics platform), Zscaler (cloud-based secure network access and data migration services) and SentinelOne (cybersecurity) shedding more than half of their equity value. In our view, the selling in software names often appeared indiscriminate and overdone. For example, top overall detractor Datadog—offering a comprehensive “technology stack” monitoring and analytics platform for software developers, IT operations teams and business users—reported what we considered strong quarterly financial results (in terms of earnings per share, revenues and billings) and raised their full-year outlook for 2022. According to our analysis, Datadog continues to be a best-in-breed business with excellent long-term growth potential (landing new clients and expanding well in large total addressable markets), and overall high quality given the rising validation of its platform, strong unit economics, and high free cash flow.

 

The other key detractors were a mix of application and systems software providers, including CrowdStrike Holdings, Confluent and GitLab. IT services was another area of widespread weakness—10 out of 11 holdings posted significant declines, and this industry allocation had the worst overall return in the IT sector. The key IT services and internet infrastructure detractors included MongoDB, Cloudflare, Snowflake and Twilio. In particular, MongoDB, which offers an innovative document database used by nearly 40,000 businesses, reported better-than-expected earnings per share, operating income, billings, and revenue in its quarterly financials released during the period. However, the company’s outlook and commentary were disappointing, with guidance generally coming in slightly below analyst forecasts, implying a slowdown. There was growing concern that a challenging economic environment would impact MongoDB’s ability to expand its relationship with existing customers.

Elsewhere in the portfolio, our results in the communication services sector were hurt by the selloffs in ZoomInfo Technologies and Alphabet in the interactive media and services industry; their negative impact was amplified by the fact they were major holdings that began the reporting period at a combined 10.6% of total net assets. Ahead of the deterioration in its equity value, ZoomInfo Technologies, which enables business-to-business marketing strategies by leveraging AI (artificial intelligence), and technographic and firmographic data, started the annual period on a high note, with quarterly sales and earnings that topped consensus expectations, including a 54% surge in revenues year over year. ZoomInfo’s platform strategy resonated with customers and helped deliver another record quarter in the second quarter of 2022, combining strong revenue growth, profitability and free cash flow—all of which prompted management to raise its full-year earnings outlook. The company also noted that it had 1,763 customers with US$100,000 or greater in annual contract value at the end of June 2022, up from 1,100 customers a year earlier.

Technology-oriented REITs (real estate investment trusts) were another area of distinct weakness as the shares of Crown Castle International and SBA Communications posted substantial 12-month losses. The Fund also kept a small exposure to professional services companies in the industrials sector, where TransUnion and TaskUs (sold by period-end) both saw their equity values substantially reduced.

In positive contrast, the Fund’s four advancing industry allocations were (in descending order of impact) communications equipment; wireless telecommunication services; capital markets; and electronic equipment, instruments and components. Across the entire portfolio, only 11 out of 42 individual securities lent material support to our returns, and their combined impact was small relative to the magnitude of the detractors.

In the IT sector, key contributor Arista Networks (a builder of scalable high-performance and ultra-low-latency networks) was our sole position in communications equipment, while the advance in electronic equipment, instruments and components was due exclusively to Keysight Technologies (electronics test and measurement equipment and software). The other notable IT sector contributors pared the losses in IT services (led by technology research and consulting service provider Gartner), and in software, where Fair Isaac and Microsoft were the best of eight net contributors. In particular, Fair Isaac—known for consumer credit scoring and business data analytics—was the Fund’s top overall contributor for the year under review, having posted a robust gain, while most of its peers were selling off. Although Fair Isaac’s revenue comes from its traditional FICO credit-scoring systems, the revenue stream tied to its newer software-as-a-service (SaaS) division has grown rapidly as it offers corporate customers a range of tools to help their companies run more efficiently. This segment leverages predictive modeling, transaction profiling, decision analysis and AI to help companies gain unique, actionable insights. Within these SaaS offerings come increasingly sought-after productivity tools, machine learning models, data retrieval and mapping solutions, real-time data insights, business outcome simulators, and pre-configured solutions such as fraud prevention. As a result, the software division drove Fair Isaac’s stock sharply higher and to record highs. Its management offered investors strong forward earnings guidance for fiscal year 2023 as the company continues to expand its market share and pursue international opportunities; its products are now used by businesses in more than 120 countries.

In the communication services sector, wireless telecommunication services provider T-Mobile US was the only contributor of substance, while overall declines in the real estate sector were partially offset by Equinix, a real estate investment trust focused on data centers and other digital infrastructure. In the financials sector, two out of four positions in the capital markets industry advanced, led by a modest rally in the shares of MSCI, which is widely regarded as the industry standard in constructing and maintaining international equity indices and ESG (environmental, social and governance) indices, along with related data analytics and research.

Thank you for your participation in Franklin Exponential Data ETF. We look forward to serving your future investment needs.

Matthew J. Moberg, CPA

Lead Portfolio Manager

Kelly Rogal, CFA

Portfolio Manager

 

 

The foregoing information reflects our analysis, opinions and portfolio holdings as of March 31, 2023, the end of the reporting period. The way we implement our main investment strategies and the resulting portfolio holdings may change depending on factors such as market and economic conditions. These opinions may not be relied upon as investment advice or an offer for a particular security. The information is not a complete analysis of every aspect of any market, state, industry, security or the Fund. Statements of fact are from sources considered reliable, but the investment manager makes no representation or warranty as to their completeness or accuracy. Although historical performance is no guarantee of future results, these insights may help you understand our investment management philosophy.

This annual report for Franklin Genomic Advancements ETF covers the fiscal year ended March 31, 2023.

Your Fund’s Goal and Main Investments

The Fund seeks capital appreciation. Under normal market conditions, the Fund invests at least 80% of its net assets in equity securities, predominantly common stock, of companies that are relevant to the Fund’s investment theme of genomic advancements. These companies include those that we believe are substantially focused on and/or are expected to substantially benefit from extending and enhancing the quality of human and other life (e.g. animals) through technological and scientific developments, improvements and advancements in such areas as genetic engineering, gene therapy, genome analysis and other uses, as outlined in more detail in the Prospectus.

Performance Overview

During the 12-month period, the Fund posted cumulative total returns of -17.71% based on market price and -17.84% based on net asset value (NAV). In comparison, the Russell 3000^® Index, which measures the performance of the largest 3,000 U.S. companies representing the majority of the U.S. market’s total capitalization, posted a -8.58% cumulative total return for the same period.¹ You can find more of the Fund’s performance data in the Performance Summary beginning on page 27.

Performance data represent past performance, which does not guarantee future results. Investment return and principal value will fluctuate, and you may have a gain or loss when you sell your shares. Current performance may differ from figures shown. For most recent month-end performance, go to franklintempleton.com or call (800) 342-5236.

Economic and Market Overview

U.S. equities, as measured by the Standard & Poor’s^® 500 Index (S&P 500^®), posted a -7.73% total return for the 12 months ended March 31, 2023.1 High inflation, rising interest rates and geopolitical instability contributed to a sharp decline in equity prices. Consumer spending continued to

rise, but deteriorating financial conditions and investors’ expectations for slower growth pressured equity markets.

Continued supply-chain disruptions, strong consumer demand and volatile energy prices drove inflation higher. Russia’s invasion of Ukraine also disrupted financial markets and led to a rise in oil and commodity prices early in the period. Inflation peaked at 9.1% in June 2022, the highest annual rate since 1981, before gradually sliding to a low of 6% in February 2023. The labor market remained strong amid a high level of nominal growth, which sent the U.S. unemployment rate down to a historic 54-year low of 3.4% in January 2023 before ending the period at 3.5%.

U.S. gross domestic product grew in the second half of 2022 after modestly contracting in the first half of the year. Rising consumer spending and increased exports amid declining inflation led to solid economic growth in the final two quarters of 2022. However, rising interest rates translated to higher borrowing costs for individuals and businesses, which dampened economic activity, especially in the housing and financial markets over the period.

In an effort to control inflation, the U.S. Federal Reserve (Fed) rapidly restricted monetary policy during the period. The Fed raised the federal funds target rate eight times to end the period at a range of 4.75%–5.00%, pushing borrowing costs to their highest levels since 2007. The interest-rate hikes included four successive 75 basis point increases at its June, July, September and November 2022 meetings and smaller increases at its remaining meetings during the period. At its March 2023 meeting, the Fed said it would continue to reduce bond holdings, but departed from previous statements by softening its firm outlook on future rate hikes. Additionally, Fed Chair Jerome Powell said the central bank most likely would not cut rates in 2023.

Portfolio Composition
3/31/23
		% of Total Net Assets
Life Sciences Tools & Services			46.1%
Biotechnology			34.0%
Pharmaceuticals			4.8%
Health Care Equipment & Supplies			4.2%
Chemicals			3.6%
Health Care Providers & Services			2.1%
Other			3.8%
Other Net Assets			1.4%

 

Top 10 Holdings
3/31/23
Company Sector/Industry		% of Total Net Assets
Thermo Fisher Scientific, Inc. Life Sciences Tools & Services			6.6%
Danaher Corp. Life Sciences Tools & Services			5.8%
Repligen Corp. Life Sciences Tools & Services			5.5%
Sartorius AG Health Care Equipment & Supplies			4.2%
Medpace Holdings, Inc. Life Sciences Tools & Services			4.0%
Regeneron Pharmaceuticals, Inc. Biotechnology			3.8%
Moderna, Inc. Biotechnology			3.8%
Vertex Pharmaceuticals, Inc. Biotechnology			3.5%
Samsung Biologics Co. Ltd. Life Sciences Tools & Services			3.2%
Bruker Corp. Life Sciences Tools & Services			3.1%

Investment Strategy

We seek to identify, using our own fundamental, bottom-up research and analysis, companies positioned to capitalize on disruptive innovation in or that are enabling the further development of the genomic advancements theme in the markets in which they operate. Our internal research and analysis leverages insights from diverse sources, including external research, to develop or refine our investment theme and identify and take advantage or trends that have ramifications for individual companies or entire industries. We also evaluate market segments, products, services and

business models positioned to benefit significantly from advancements in genomics relative to broad securities markets, and we seek to identify the primary beneficiaries of new trends or developments in genomics. We may invest in companies in any economic sector or of any market capitalization and may invest in companies both inside and outside of the U.S., including those in developing or emerging markets. Although we may invest across economic sectors, we expect to concentrate our investments in health care-related industries.

Manager’s Discussion

During the 12 months under review, all of the Fund’s core areas of investment—life sciences tools and services, biotechnology and pharmaceuticals—experienced widespread absolute declines under bear market conditions, though their overall returns did see some improvement in the latter half of the year. The modest gains accumulated from mid-October through March were, however, achieved amid additional bouts of market volatility and were not nearly enough to compensate for the magnitude of declines sustained in the first six months of the period.

Some of our larger positions in the life sciences tools and services industry had a disproportionately negative impact on returns, including Avantor, a chemicals and materials company that supplies the life sciences, advanced technologies and applied materials industries; Charles River Laboratories International, which specializes in outsourced preclinical research for the biopharma industry; Danaher, which makes diagnostic tools for a wide range of medical, scientific, industrial and commercial applications; and Repligen, which develops and manufactures materials used to make biologic drugs.

Within the biotechnology industry, our sizable positions in Intellia Therapeutics, which develops therapeutics using a CRISPR gene editing system; and Germany-based immunotherapy drug and mRNA-based vaccine developer BioNTech, were at the top of an extensive list of detractors. At the same time, Catalent (global provider of outsourced drug development and drug manufacturing) and British multinational pharmaceutical giant GSK—both of which we completely sold by period-end—were the worst of several detractors that hurt performance in the pharmaceuticals industry.

To a lesser extent, returns in six out of eight other, smaller industry allocations were also negative for the year under review, including a steep loss in health care services that was tied primarily to Guardant Health, a precision oncology company engaged in the treatment of cancer through the

use of proprietary blood-based tests, vast data sets, and advanced analytics, and which shed more than half of its equity value. In the semiconductors industry, we held a solitary investment in chipmaker NVIDIA that was detrimental based on the timing of our trading around the stock, having sold it after it shed roughly half of its equity value, and just ahead of a strong rally that took place in early 2023. Elsewhere in the portfolio, all four of our holdings in the health care technology industry traded lower, as did our solitary position in the Office REITs industry—Alexandria Real Estate Equities, which invests in office buildings and laboratories leased to tenants in the life sciences and technology industries.

In terms of what helped the Fund during the year under review, there were only eight substantive contributors across the portfolio, along with a handful of negligible ones that had almost no impact on returns. Most of them were situated in the biotechnology industry, where six companies bucked the overall downtrend with solid, double-digit percentage gains (in descending order of positive impact): Regeneron Pharmaceuticals, Vertex Pharmaceuticals, Sarepta Therapeutics (purchased during the period), Exact Sciences (purchased during the period), Krystal Biotech and Iveric Bio (purchased during the period). Several others surfaced in the life sciences tools and services industry, where contract research organization Medpace Holdings and Bruker, a manufacturer of scientific instruments for molecular and materials research, enjoyed solid rallies and were accompanied by a few other, minor contributors.

The only other notable contributors were multinational drugmaker Eli Lilly in pharmaceuticals, and our newly-initiated stake in Cadence Design Systems (software, hardware and intellectual properties used to design microchips, related systems and printed circuit boards), which was our sole investment in the application software industry.

Thank you for your participation in Franklin Genomic Advancements ETF. We look forward to serving your future investment needs.

Matthew J. Moberg, CPA

Lead Portfolio Manager

Kelly Rogal, CFA

Portfolio Manager

 

 

The foregoing information reflects our analysis, opinions and portfolio holdings as of March 31, 2023, the end of the reporting period. The way we implement our main investment strategies and the resulting portfolio holdings may change depending on factors such as market and economic conditions. These opinions may not be relied upon as investment advice or an offer for a particular security. The information is not a complete analysis of every aspect of any market, state, industry, security or the Fund. Statements of fact are from sources considered reliable, but the investment manager makes no representation or warranty as to their completeness or accuracy. Although historical performance is no guarantee of future results, these insights may help you understand our investment management philosophy.

This annual report for Franklin High Yield Corporate ETF covers the fiscal year ended March 31, 2023.

Your Fund’s Goal and Main Investments

The Fund seeks to earn a high level of current income. Its secondary goal is to seek capital appreciation to the extent it is possible and consistent with the Fund’s principal goal. The Fund normally 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, including bonds, notes, debentures, convertible securities, bank loans and corporate loans, and senior and subordinated debt securities.

Performance Overview

During the 12 month period, the Fund posted cumulative total returns of -1.46% based on market price and -2.68% based on net asset value (NAV). In comparison, the ICE BofA U.S. High Yield Constrained Index, which tracks the performance of U.S. dollar denominated below investment-grade corporate debt publicly issued in the U.S. domestic market, posted a -3.58% cumulative total return for the same period.¹ You can find more of the Fund’s performance data in the Performance Summary beginning on page 34.

Performance data represent past performance, which does not guarantee future results. Investment return and principal value will fluctuate, and you may have a gain or loss when you sell your shares. Current performance may differ from figures shown. For most recent month-end performance, go to franklintempleton.com or call (800) 342-5236.

Economic and Market Overview

The U.S. bond market, as measured by the Bloomberg U.S. Aggregate Bond Index, posted a -4.78% total return for the

12-month period ended March 31, 2023.¹ High inflation amid a strong labor market led to significantly tighter monetary policy, reducing the value of most bonds. While interest rates increased along the yield curve for all U.S. Treasury maturities, relatively large increases in shorter-term interest rates led the yield curve to invert during the period as

investors became increasingly concerned about the economic outlook.

In an effort to control inflation, the U.S. Federal Reserve (Fed) raised the federal funds target rate at each of its eight meetings during the period to end at a range of 4.75%– 5.00%, a full 450 basis points higher than at the beginning of the period. The Fed noted in its March 2023 meeting that inflation remained elevated amid robust job growth and low unemployment. Despite its goal of 2% long-run inflation, the Fed softened its firm outlook on future rate hikes. Furthermore, the Fed indicated it would continue to reduce its U.S. Treasury (UST) and agency debt and mortgage-backed security holdings.

UST bonds, as measured by the Bloomberg U.S. Treasury Index, posted a -4.51% total return for the 12-month period.¹ The 10-year UST yield, which moves inversely to price, increased sharply amid high inflation and the Fed’s tightening monetary stance. Mortgage-backed securities (MBS), as measured by the Bloomberg U.S. MBS Fixed Rate Index, posted a -4.85% total return for the period as mortgage rates rose to the highest level in over two decades and modest prepayment rates led to increasing interest-rate sensitivity.¹

Corporate bond prices also declined, constrained by inflation, rising interest rates and concerns about the impact of elevated interest rates on corporate borrowing costs and the wider economy. In this environment, high-yield corporate bonds, as represented by the Bloomberg U.S. Corporate High Yield Index, posted a -3.34% total return, while investment-grade corporate bonds, as represented by the Bloomberg U.S. Corporate Investment Grade Index, posted a -5.55% total return.¹

Portfolio Composition
3/31/23
		% of Total Net Assets
Corporate Bonds & Notes			89.7%
Senior Floating Rate Interests			3.9%
Short-Term Investments & Other Net Assets			6.4%

 

Top 10 Sectors/Industries
3/31/23
		% of Total Net Assets
Energy			15.8%
Media & Entertainment			11.2%
Materials			9.4%
Financial Services			5.3%
Consumer Services			4.6%
Utilities			4.6%
Commercial & Professional Services			4.5%
Capital Goods			3.9%
Automobiles & Components			3.7%
Health Care Equipment & Services			3.5%

Investment Strategy

The Fund may invest up to 100% of its total assets in high yield debt securities. The Fund may buy both rated and unrated debt securities, including securities rated below B by Moody’s or Standard & Poor’s (or deemed comparable by the Fund’s investment manager). The Fund may invest in fixed or floating rate corporate loans and corporate debt securities, including covenant lite loans. The Fund may also invest in defaulted debt securities and debt securities of any maturity or duration.

The Fund may invest in debt securities of U.S. and foreign issuers, including those in developing or emerging markets. The Fund may enter into certain derivative transactions, principally currency and cross currency forwards; and swap agreements, including interest rate and credit default swaps (including credit default index swaps). The use of these derivative transactions may allow the Fund to obtain net long or short exposures to select currencies, interest rates, countries, durations or credit risks.

We are research driven, fundamental investors who rely on our team of analysts to provide in-depth industry expertise and use qualitative and quantitative analysis to evaluate companies. As bottom-up investors, we focus primarily on individual securities but consider sectors when choosing investments. In selecting securities, we do not rely principally

on the ratings assigned by rating agencies, but perform our own independent investment analysis to evaluate the creditworthiness of the issuer. We consider a variety of factors, including the issuer’s experience and managerial strength, its sensitivity to economic conditions, and its current and prospective financial condition. The Fund is an actively managed ETF and, thus, does not seek to replicate the performance of a specified index.

Manager’s Discussion

As the Fed had remained firmly on a hawkish rate path throughout 2022, its rate hike in September 2022 marked the third consecutive 75 basis point (bp) increase. The Fed ended the year with two additional rate increases of 75 bps and 50 bps at its November and December Federal Open Market Committee meetings. In the last few months of 2022, markets focused on slowing inflation data and investors grappled with the potential timing of the transition from a rate hiking cycle to a potential Fed pivot. Against this backdrop, the Fed followed up with two additional 25-bp rate increases at its February and March 2023 meetings. Although investors were encouraged by a general downward trend in inflation data at the beginning of 2023’s first quarter, sentiments were negatively affected in the second half of March as the failure of Silicon Valley Bank spawned additional concerns over the health of U.S. regional and Swiss banks.

In the current environment where labor costs remain a challenge and raw material and logistics costs remain somewhat elevated, the ability to offset costs with price increases has become more tenuous. As such, the variable impact to corporate earnings is likely to drive more fundamental dispersion between winners and losers. Against this backdrop, we remain focused on companies that have capital structures and liquidity profiles that we believe will withstand the potential economic challenges that lie ahead.

Based on benchmark index data, high-yield (HY) spreads generally widened during the 12-month period under review. Most segments of the HY market posted negative absolute returns for the performance period under review. CCC rated bonds returned -8.8%, compared to returns of -3.8% and -2.3% for B and BB rated segments, respectively. From an industry standpoint, the transportation industry stood out as a key performer, followed by the capital goods segment.

The Fund’s yield-curve positioning contributed to performance during the 12-month period under review. Conversely, the Fund’s ratings-quality tilt hindered results.

The Fund’s sector/industry allocations contributed to relative performance for the period, led by overweight positions in energy and industrials and underweight positions in retail. Conversely, underweight positions in aerospace and defense, and in food and beverages, and an overweight position in the media non-cable segment hindered results.

The Fund’s security selection also benefited performance, particularly in the media cable, wired segment and in information technology. Conversely, selection in the energy, health care and financials sectors detracted from results.

The Fund held mostly cash bonds during the period under review. The Fund had no exposure to derivatives at the end of the review period.

 

Top 10 Holdings
3/31/23
Company Sector/Industry		% of Total Net Assets
Federal Home Loan Bank Discount Notes, 4/03/23			3.0%
Vistra Operations Co. LLC, 5.50%, 9/01/26 Utilities			1.4%
TransDigm, Inc., 6.25%, 3/15/26 Capital Goods			1.3%
Martin Midstream Partners LP/Martin Midstream   Finance Corp., 11.50%, 2/15/28 Pipelines			1.1%
American Airlines, Inc./AAdvantage Loyalty IP Ltd.,   5.50%, 4/20/26 Airlines			1.0%
DaVita, Inc., 4.625%, 6/01/30 Health Care Equipment & Services			1.0%
United Rentals North America, Inc., 5.50%, 5/15/27 Commercial Services			1.0%
Banijay Entertainment SASU, 5.375%, 3/01/25 Media & Entertainment			1.0%
Jaguar Land Rover Automotive PLC, 5.50%, 7/15/29 Automobiles & Components			1.0%
Harbour Energy PLC, 5.50%, 10/15/26 Energy			1.0%

Thank you for your participation in Franklin High Yield Corporate ETF. We look forward to serving your future investment needs.

Glenn I. Voyles, CFA

Patricia O’Connor, CFA

Jonathan G. Belk, CFA

Thomas Runkel, CFA

Pururav Thoutireddy, Ph.D

Portfolio Management Team

 

 

The foregoing information reflects our analysis, opinions and portfolio holdings as of March 31, 2023, the end of the reporting period. The way we implement our main investment strategies and the resulting portfolio holdings may change depending on factors such as market and economic conditions. These opinions may not be relied upon as investment advice or an offer for a particular security. The information is not a complete analysis of every aspect of any market, state, industry, security or the Fund. Statements of fact are from sources considered reliable, but the investment manager makes no representation or warranty as to their completeness or accuracy. Although historical performance is no guarantee of future results, these insights may help you understand our investment management philosophy.

This annual report for Franklin Intelligent Machines ETF covers the fiscal year ended March 31, 2023.

Your Fund’s Goal and Main Investments

The Fund seeks capital appreciation. Under normal market conditions, the Fund invests at least 80% of its net assets in equity securities, predominantly common stock, of companies that are relevant to the Fund’s investment theme of intelligent machines. These companies include those that we believe are substantially focused on and/or are expected to substantially benefit from the ongoing technology-driven transformation of products, software, systems and machinery as well as product design, manufacture, logistics, distribution and maintenance, including through developments in artificial intelligence, as outlined in more detail in the Prospectus.

Performance Overview

During the 12-month period, the Fund posted cumulative total returns of -4.44% based on market price and -4.62% based on net asset value (NAV). In comparison, the Russell 3000^® Index, which measures the performance of the largest 3,000 U.S. companies representing the majority of the U.S. market’s total capitalization, posted a -8.58% cumulative total return for the same period.¹ You can find more of the Fund’s performance data in the Performance Summary beginning on page 42.

Performance data represent past performance, which does not guarantee future results. Investment return and principal value will fluctuate, and you may have a gain or loss when you sell your shares. Current performance may differ from figures shown. For most recent month-end performance, go to franklintempleton.com or call (800) 342-5236.

Economic and Market Overview

U.S. equities, as measured by the Standard & Poor’s^® 500 Index (S&P 500^®), posted a -7.73% total return for the 12 months ended March 31, 2023.1 High inflation, rising interest rates and geopolitical instability contributed to a sharp decline in equity prices. Consumer spending continued to

rise, but deteriorating financial conditions and investors’ expectations for slower growth pressured equity markets.

Continued supply-chain disruptions, strong consumer demand and volatile energy prices drove inflation higher. Russia’s invasion of Ukraine also disrupted financial markets and led to a rise in oil and commodity prices early in the period. Inflation peaked at 9.1% in June 2022, the highest annual rate since 1981, before gradually sliding to a low of 6% in February 2023. The labor market remained strong amid a high level of nominal growth, which sent the U.S. unemployment rate down to a historic 54-year low of 3.4% in January 2023 before ending the period at 3.5%.

U.S. gross domestic product grew in the second half of 2022 after modestly contracting in the first half of the year. Rising consumer spending and increased exports amid declining inflation led to solid economic growth in the final two quarters of 2022. However, rising interest rates translated to higher borrowing costs for individuals and businesses, which dampened economic activity, especially in the housing and financial markets over the period.

In an effort to control inflation, the U.S. Federal Reserve (Fed) rapidly restricted monetary policy during the period. The Fed raised the federal funds target rate eight times to end the period at a range of 4.75%–5.00%, pushing borrowing costs to their highest levels since 2007. The interest-rate hikes included four successive 75 basis point increases at its June, July, September and November 2022 meetings and smaller increases at its remaining meetings during the period. At its March 2023 meeting, the Fed said it would continue to reduce bond holdings, but departed from previous statements by softening its firm outlook on future rate hikes. Additionally, Fed Chair Jerome Powell said the central bank most likely would not cut rates in 2023.

Portfolio Composition
3/31/23
		% of Total Net Assets
Semiconductors & Semiconductor Equipment			36.0%
Software			22.9%
Health Care Equipment & Supplies			10.6%
Electronic Equipment, Instruments & Components			8.9%
Computers & Peripherals			4.6%
Automobiles			4.6%
Aerospace & Defense			3.2%
Construction & Engineering			3.0%
Industrial Conglomerates			2.1%
Other			2.7%
Other Net Assets			1.4%

 

Top 10 Holdings
3/31/23
Company Sector/Industry		% of Total Net Assets
NVIDIA Corp. Semiconductors & Semiconductor Equipment			7.1%
ASML Holding NV Semiconductors & Semiconductor Equipment			4.9%
Tesla, Inc. Automobiles			4.6%
Apple, Inc. Technology Hardware, Storage & Peripherals			4.6%
Cadence Design Systems, Inc. Software			4.3%
Intuitive Surgical, Inc. Health Care Equipment & Supplies			4.1%
Synopsys, Inc. Software			4.1%
Keyence Corp. Electronic Equipment, Instruments & Components			3.4%
Axon Enterprise, Inc. Aerospace & Defense			3.2%
Descartes Systems Group, Inc. Software			3.0%

Investment Strategy

We seek to identify, using our own fundamental, bottom-up research and analysis, companies positioned to capitalize on disruptive innovation in or that are enabling the further development of the intelligent machines theme in the markets in which they operate. Our internal research and analysis leverages insights from diverse sources, including external research, to develop and refine its investment theme

and identify and take advantage of trends that have ramifications for individual companies or entire industries. We also evaluate market segments, products, services and business models positioned to benefit significantly from disruptive innovations in intelligent products, design, manufacturing and/or predictive maintenance relative to broad securities markets, and we seek to identify the primary beneficiaries of new trends or developments in physical applications of these innovations. We may invest in companies in any economic sector or of any market capitalization and may invest in companies both inside and outside of the U.S., including those in developing or emerging markets. Although we may invest across economic sectors, we expect to have significant investments in particular sectors, including technology.

Manager’s Discussion

During the 12 months under review, the Fund was invested in 16 different industries, and only six of them produced positive absolute returns. This was an improvement from the midpoint of the annual period, when all 16 were in negative territory. Although the impressive gains made from October through March recovered most of the steep overall losses incurred in the first half of the year, it was not enough to eliminate weakness that was focused primarily on electric vehicle (EV) manufacturers such as Tesla, which was by far the Fund’s largest individual detractor from absolute returns.

On average, Tesla was the Fund’s biggest investment, and its sharp loss for the year overall would have been worse if not for the solid recovery the company staged in early 2023, as previous concerns centered on rising interest rates and consumer demand began to abate. U.S.-based Tesla has been expanding its footprint as a multinational automotive and clean energy company as it continues to accelerate the world’s transition to sustainable energy. Its manufacturing scope continues to broaden across electric vehicles, battery energy storage solutions (from home to utility grid scale), solar panels and roof tiles, and related services. Late in the period, Tesla released broadly in-line fourth-quarter and full-year 2022 financial results with demand commentary that appeared to ease investor anxiety, owing in part to the specter of lower gross profit margins following recent vehicle price reductions and higher unabsorbed fixed costs associated with factories ramping up in Berlin (Germany) and Austin (USA); it also picked an industrial cluster in Mexico as the location for the construction of its next gigafactory as it continues to expand capacity at a rapid clip. Last year saw several record-breaking achievements as Tesla reported its highest-ever quarterly revenue and

operating and net income. Moreover, the EV specialist generated US$7.6 billion of free cash flow and delivered a record 1.31 million vehicles in 2022. We think Tesla is positioned to continue taking swaths of market share across autos and with a richer profit stream than incumbents, while also pioneering new opportunities in significant TAMs (total addressable markets) such as energy storage and possibly one day, artificial intelligence (AI) robotics.

Along with Tesla, the rest of our investments in the consumer discretionary sector anchored the Fund to the downside, as did most health care sector stocks, including standout detractors Intuitive Surgical (robotic surgery systems) and DexCom (next-generation glucose monitoring systems) in the health care equipment and supplies industry; and Azenta (specializing in sample management solutions and genomic services for drug development, clinical research and advanced cell therapies; sold by period-end) in the life sciences tools and services industry.

Within the industrials sector, the overall gains were curbed by widespread declines in the electrical equipment and machinery industries, where Rockwell Automation (industrial automation components; sold by period-end), Sunrun (photovoltaic systems and battery energy storage products) and Chart Industries (specialty equipment servicing applications in the energy, hydrogen/carbon capture and industrial gas markets; bought and sold during the period) were notable detractors.

The rest of the Fund’s major detractors weakened the overall gains among information technology (IT) sector companies. We maintained substantial exposure to tech bellwether Apple, which posted a modest decline for the year. Several smaller IT holdings, meanwhile, suffered much larger declines, including Entegris, SiTime and Wolfspeed (purchased during the period) in the semiconductors and semiconductor equipment industry; Zebra Technologies (mobile computing specialist focused on barcode printers and barcode scanners) in the electronic equipment, instruments and components industry; and several software companies including Atlassian (collaborative and quality-control software for software developers) and Dassault Systèmes (3D product design, simulation and manufacturing software).

In terms of what aided performance, the Fund received a solid boost from IT and industrials sector holdings foremost. Within IT, most software stocks were net contributors including our two largest related holdings—Cadence Design Systems and Synopsys, both of which sell electronic design automation software and services: Cadence focuses on computational software for microchip and circuit board

design, while Synopsys specializes in silicon design/verification, computer systems simulators and application security testing. Eight out of 13 other software holdings were also net contributors, including Ansys and Constellation Software. In particular, Ansys, which specializes in CAE (computer-aided engineering) and multiphysics simulation software, staged a strong comeback toward the end of the reporting period. Like other companies with heavy exposure to the industrial world, Ansys is susceptible to a slowdown in its end markets linked to any moderation in industrial production. Therefore, going into its February earnings report (covering the fourth quarter of 2022), investors were concerned about a potential cyclical slowdown for the company. Ansys showed it can generate double-digit percentage growth even in a slowing economy, based on the strong underlying growth prospects coming from the increasing use of simulation software, not least to produce data used in a so-called “digital twin”—a digital model of a physical asset. The data from digital simulations is used in IoT (internet of things) platforms that connect the digital world with the physical world to predict the physical asset’s behavior better. In addition to giving engineers the power to see how their ideas would perform against millions of variables, it also reduces waste. The company’s latest financial metrics gave management enough confidence to forecast that it would grow more than revenue as the business model continues to shift towards subscription leases, and with simulation becoming an ever-increasing part of industrial customers’ innovative workflow across civil, defense, aerospace, commercial and scientific research programs. The software is helping engineers develop more complex products faster through new cloud options and optimized use of GPUs (graphics processing units) and also helping them design new materials as they seek to develop more sustainable products, including new steels, composites and short fiber reinforced plastics, to name a few.

In the electronic equipment, instruments and components industry, Keyence—a maker of sensors, machine vision systems, measuring instruments, barcode readers, programmable logic controllers and factory automation sensor products—was the best of several net contributors.

Semiconductor-related companies remained one of our core investment themes, comprising roughly a third of the portfolio’s total net assets. In general, these holdings fared poorly in 2022 before rallying solidly in the first quarter of 2023. As a result, most of them ended the annual period with overall gains. Our results were lifted primarily by ASML Holding, ASM International, Analog Devices and Infineon Technologies, though 10 others were also net contributors to absolute returns.

Several industrials sector holdings posted strong, double-digit percentage gains, none more so than Axon Enterprise, which designs and manufactures non-lethal weapons primarily for law enforcement. To a lesser extent, further support stemmed from the rally in German multinational industrial manufacturing conglomerate Siemens, and from our positions in construction and engineering services such as Quanta Services (planning, design, installation, program management, maintenance and repair of most types of network infrastructure) and Valmont Industries, which manufactures irrigation equipment, windmill support structures, and utility poles.

Across the rest of the portfolio, the only notable contributor was insulin delivery and management systems developer Insulet, which aided our otherwise lackluster results in the health care sector.

Thank you for your continued participation in Franklin Intelligent Machines ETF. We look forward to serving your future investment needs.

Matthew J. Moberg, CPA

Lead Portfolio Manager

Kelly Rogal, CFA

Portfolio Manager

 

 

The foregoing information reflects our analysis, opinions and portfolio holdings as of March 31, 2023, the end of the reporting period. The way we implement our main investment strategies and the resulting portfolio holdings may change depending on factors such as market and economic conditions. These opinions may not be relied upon as investment advice or an offer for a particular security. The information is not a complete analysis of every aspect of any market, state, industry, security or the Fund. Statements of fact are from sources considered reliable, but the investment manager makes no representation or warranty as to their completeness or accuracy. Although historical performance is no guarantee of future results, these insights may help you understand our investment management philosophy.

This annual report for Franklin International Aggregate Bond ETF covers the fiscal year ended March 31, 2023.

Your Fund’s Goal and Main Investments

The Fund seeks total investment return, consistent with prudent investing, consisting of a combination of interest income and capital appreciation. Under normal market conditions, 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.

Geographic Composition*

3/31/23

 

		% of Total Net Assets
Europe			52.9%
Asia			22.1%
North America			6.3%
Australia & New Zealand			3.2%
Latin America & Caribbean			1.8%
Supranationals			1.7%
Middle East & Africa			1.1%
Short-Term Investments & Other Net Assets			10.9%

*Categories within the Other category are listed in full in the Fund’s Schedule of Investments (SOI), which can be found later in this report.

Performance Overview

During the 12-month period, the Fund posted cumulative total returns of -2.33 based on market price and -2.38% based on net asset value (NAV). In comparison, the Fund’s benchmark, the Bloomberg Global Aggregate Bond ex-USD Index (100% Hedged to USD), which measures global investment-grade debt from 24 local currency markets, posted a -3.27% cumulative total return.¹ You can find more of the Fund’s performance data in the Performance Summary beginning on page 49.

Performance data represent past performance, which does not guarantee future results. Investment return and principal value will fluctuate, and you may have a gain or loss when you sell your shares. Current performance may differ from

figures shown. For most recent month-end performance, go to franklintempleton.com or call (800) 342-5236.

Economic and Market Overview

During the 12-month reporting period, global aggregate bond markets posted significantly negative returns.

U.S. inflation maintained its upward trend over the second quarter of 2022. This caused the U.S. Federal Reserve (Fed) to raise rates by 50 basis points (bps) in early May 2022, then again in June by an unexpected 75 bps. Given persistently rising inflation, the Fed raised rates by a further 75 bps in July. After a hawkish Jackson Hole address from Fed Chair Jerome Powell in August, the central bank hiked rates by another 75 bps in September. The Fed then raised rates by 75 bps early in November but by only 50 bps in December 2022, amid signs of easing inflation. Despite this softer stance, Fed Chair Powell pushed back on investor expectations of a rate cut toward the end of 2023.

Although the Fed raised rates in its February 2023 meeting by only 25 bps, increased investor concerns that U.S. inflation was reaccelerating precipitated a wide sell-off in bonds. While March 2023 was accompanied by further volatility amid concerns about the banking sector, the Fed raised rates by a further 25 bps in March. Against this backdrop, benchmark 10-year U.S. Treasury yields showed extreme volatility but, for the 12-month period review period overall, rose by over 100 bps.

In Europe, after initially holding back from raising the cost of borrowing, the European Central Bank (ECB) raised rates by an unexpected 50 bps in July 2022, 75 bps in both September and October, then in December 2022 by 50 bps. Data released in January 2023 showed that the eurozone economy had grown marginally in the fourth quarter of 2022, despite market expectations of a recession. Although headline inflation slowed significantly, core inflation remained elevated. As a result, the ECB hiked rates by 50 bps at both its February and March 2023 meetings. In European fixed income markets, amid heightened volatility, benchmark 10-year German Bund yields were up almost 170 bps for the 12-month period.

Portfolio Composition*

3/31/23

 

		% of Total Net Assets
Foreign Government and Agency Securities			85.2%
Corporate Bonds & Notes			3.9%
Short-Term Investments & Other Net Assets			10.9%

*Categories within the Other category are listed in full in the Fund’s Schedule of Investments (SOI), which can be found later in this report.

Investment Strategy

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. Bonds may be denominated and issued in the local currency or in another currency. The Fund may also invest in securities or structured products that are linked to or derive their value from another security, asset or currency of any nation. In addition, the Fund’s assets are invested in issuers located in at least three countries (excluding the U.S.). The Fund may invest without limit in developing or emerging markets.

The Fund may invest in debt securities of any maturity or duration, and the average maturity or duration of debt securities in the Fund’s portfolio will fluctuate depending on the investment manager’s outlook on changing market, economic and political conditions.

The Fund is a “non-diversified” fund, which means it generally invests a greater portion of its assets in the securities of one or more issuers and invests overall in a smaller number of issuers than a diversified fund.

When choosing investments for the Fund, we allocate the Fund’s assets based upon our assessment of changing market, political and economic conditions. We consider various factors, including evaluation of interest rates, currency exchange rate changes and credit risks. We may consider selling a security when we believe the security has become fully valued due to either its price appreciation or changes in the issuer’s fundamentals, or when we believe another security is a more attractive investment opportunity.

We seek to hedge substantially all the Fund’s foreign currency exposure using currency-related derivatives, including currency and cross currency forwards and currency futures contracts. We expect to maintain extensive positions in currency-related derivative instruments as a hedging technique or to implement a currency investment

strategy, which exposes a large amount of the Fund’s assets to obligations under these instruments. The results of such transactions may represent, from time to time, a significant component of the Fund’s investment returns. The use of these derivative transactions may allow the Fund to obtain net long or net negative (short) exposure to selected currencies. The Fund may also enter into various other transactions involving derivatives, including interest rate/bond futures contracts and interest-rate swap agreements.

Manager’s Discussion

The Fund’s duration and yield-curve positioning helped relative results, mostly due to duration stances on eurozone, U.K. and Japanese bonds. However, duration positioning in Chinese and Canadian bonds hindered relative performance.

The Fund’s local market allocation further contributed to relative returns, namely an overweight exposure to the outperforming U.S. market and an underweight position in the underperforming U.K. market. Nonetheless, underweight allocations to the Chinese, Indonesian and South Korean markets, all of which bettered the benchmark, weighed on relative results, as did an overweight exposure to the underperforming eurozone market.

In contrast, the Fund’s security selection weighed on relative performance, but sector allocation had a neutral impact. Selection in investment-grade financial bonds and hard-currency emerging market debt subtracted from relative value. Conversely, an overweight exposure to German Bunds had a positive influence on relative returns.

The Fund’s currency positioning also detracted from relative results, largely owing to overweight exposures to the Chinese renminbi and Canadian dollar, both of which were down versus the U.S. dollar. In contrast, underweight allocations to the Japanese yen, British pound and euro, all of which also depreciated against the U.S. dollar, added to relative value.

In terms of derivatives use, currency forwards are used in the portfolio to hedge foreign-currency-denominated holdings back into the portfolio’s base currency, the U.S. dollar. Therefore, the use of the forwards is generally risk reducing, both on an absolute basis and relative to the benchmark. For the period under review, derivatives use added 593 bps to the Fund’s performance, as the U.S. dollar rose slightly against most other major currencies.

Thank you for your participation in Franklin International Aggregate Bond ETF. We look forward to serving your future investment needs.

John W. Beck

Co-Lead Portfolio Manager

Sonal Desai, Ph.D.

Co-Lead Portfolio Manager

David Zahn, CFA

Patrick Klein, Ph.D.

Portfolio Management Team

 

 

The foregoing information reflects our analysis, opinions and portfolio holdings as of March 31, 2023, the end of the reporting period. The way we implement our main investment strategies and the resulting portfolio holdings may change depending on factors such as market and economic conditions. These opinions may not be relied upon as investment advice or an offer for a particular security. The information is not a complete analysis of every aspect of any market, state, industry, security or the Fund. Statements of fact are from sources considered reliable, but the investment manager makes no representation or warranty as to their completeness or accuracy. Although historical performance is no guarantee of future results, these insights may help you understand our investment management philosophy.

This annual report for Franklin Investment Grade Corporate ETF covers the fiscal year ended March 31, 2023.

Your Fund’s Goal and Main Investments

The Fund seeks a high level of current income as is consistent with prudent investing, while seeking preservation of capital. Under normal market conditions, the Fund invests at least 80% of its net assets in investment-grade corporate debt securities and investments.

Performance Overview

During the 12-month period, the Fund posted cumulative total returns of -6.25% based on market price and -6.46% based on net asset value (NAV).¹ In comparison, the Bloomberg U.S. Corporate Investment Grade Index, which measures the performance of the investment grade, fixed-rate, taxable corporate bond market, posted a -5.55% cumulative total return for the same period.¹ You can find more of the Fund’s performance data in the Performance Summary beginning on page 56.

Performance data represent past performance, which does not guarantee future results. Investment return and principal value will fluctuate, and you may have a gain or loss when you sell your shares. Current performance may differ from figures shown. For most recent month-end performance, go to franklintempleton.com or call (800) 342-5236.

Economic and Market Overview

When looking back over the previous 12 months, the U.S. economic story was one of inflation, U.S. Federal Reserve (Fed) action, and volatility. As we moved into the second quarter of 2022 (Q2), the U.S. consumer remained strong with spending bolstered by excess savings and a strong U.S. job market.

Inflation became a large issue as the year-over-year change in the Consumer Price Index pushed higher into the summer months, reaching 9.1% in June 2022, the highest level since 1981, before trending lower. The U.S. job market also showed strong resilience with a monthly average of 362,000 jobs created during the 12-month period under review. The

unemployment rate fell to 3.4% in January 2023, the lowest level since 1969.

The Fed was slow to act toward inflation as it initially considered rapid price increases as “transitory.” The Fed capitulated and initiated a program of rapid rate increases at a pace not seen since the 1980s. Over the period under review, the Fed raised its policy rate by a total of 4.50%, taking it to a restrictive level of 4.75% - 5.00%. U.S. Treasury (UST) yields rose over the period with the benchmark 10-year UST rising 113 basis points (bps), however, there was significant volatility along the way.

U.S. corporate bond spreads also saw significant volatility. Spreads generally widened during 2022 as funds flowed out of the sector due to concerns of a possible recession. This trend reversed during the first part of 2023 with spreads tightening as confidence in the Fed increased. However, in March 2023, Silicon Valley Bank faced a liquidity crisis leading regulators to step in to support deposits. This led to an increase in corporate bond spreads, particularly in the financials sector. Although there was some recovery, spreads ended the period modestly wider versus March 2022.

Top 10 Sectors/Industries

3/31/23

 

		% of Total Net Assets
Banks			21.7%
Electric Utilities			7.0%
Financial Services			4.7%
Electric			4.4%
Health Care Providers & Services			3.9%
Biotechnology			3.9%
Insurance			3.5%
Oil, Gas & Consumable Fuels			2.9%
Food			2.9%
Media			2.4%

Investment Strategy

The Fund invests primarily in U.S. dollar-denominated corporate debt securities issued by U.S. and foreign companies. The Fund may invest in debt securities of any maturity or duration. The Fund may also invest a portion of its assets in convertible securities, preferred securities (including preferred stock) and U.S. Treasury securities, and generally expects to invest a portion of its assets in cash, cash equivalents and high-quality money market securities, including short-term U.S. government securities, commercial paper, repurchase agreements and affiliated or unaffiliated money market funds. The Fund may invest up to 40% of its net assets in foreign securities, including those in developing markets, and up to 15% of its net assets in non-U.S. dollar-denominated securities.

Top 10 Holdings

3/31/23

 

Issue/Issuer		% of Total Net Assets
Verizon Communications, Inc., senior bond, 3.40%, 3/22/41			1.7%
Amgen, Inc., 5.60%, 3/02/43			1.4%
Goldman Sachs Group, Inc., 2.64% to 2/24/27, FRN thereafter, 2/24/28			1.4%
Bank of America Corp., Series L, 4.183%, 11/25/27			1.3%
T-Mobile USA, Inc., 2.875%, 2/15/31			1.3%
Kenvue, Inc., 4.90%, 3/22/33			1.3%
Wells Fargo & Co., 4.808% to 7/25/27, FRN thereafter, 7/25/28			1.3%
Vistra Operations Co. LLC, senior secured note, first lien, 3.55%, 7/15/24			1.2%
Elevance Health, Inc., 4.10%, 5/15/32			1.2%
BPCE SA, senior note, 5.70%, 10/22/23			1.2%

In choosing investments, we select securities in various market sectors based on our assessment of changing economic, market, industry and issuer conditions. We use a top-down analysis of macroeconomic trends, combined with a bottom-up fundamental analysis of market sectors, industries and issuers, to try to take advantage of varying sector reactions to economic events. The Fund’s focus on the credit quality of its portfolio is intended to reduce credit risk and help to preserve the Fund’s capital. The Fund’s portfolio is constructed by taking into account our desired duration and yield curve exposure, total return potential, as well as the appropriate diversification and risk profile at the issue, company and industry level. The Fund may enter into certain derivative transactions to seek to enhance Fund returns, increase liquidity, gain exposure to certain

instruments or markets in a more efficient or less expensive way and/or hedge risks associated with its other portfolio investments.

Manager’s Discussion

Investment-grade corporate bond absolute performance was negative over the 12 months under review, curbed by a changing macroeconomic environment, fast rising UST yields and modestly wider corporate bond spreads.

The Fund performed worse than the benchmark for the 12 months under review.

The Fund’s sector allocation weighed on performance as an underweight to technology bond issues and overweight to banking names hurt our returns. This was partially offset by positive performance contributions from our overweight to electric utilities and underweight to brokerage firms.

The Fund’s bias toward lower-rated issues, particularly those rated BBB, detracted from relative results as lower-quality issues underperformed their higher-rated counterparts. We did reduce the BBB overweight significantly during the period in anticipation of slower economic growth following aggressive Fed tightening.

Security selection detracted from results, led by companies within the banking segment. The Fund’s holdings in Silicon Valley Bank hurt performance after the bank experienced liquidity issues and was taken over by regulators. However, we saw positive returns from selection in consumer cyclical and non-cyclical issues and capital goods companies.

Duration and yield curve positioning was a positive contributor to relative performance. On average, we maintained a duration slightly lower than the benchmark (especially in bonds with two years to maturity). This lifted returns as UST yields rose over the 12-month period.

The Fund primarily held cash bonds during the period. The Fund also used interest-rate futures contracts to manage duration exposure. The use of futures had a small impact on total Fund returns.

Thank you for your participation in Franklin Investment Grade Corporate ETF. We look forward to serving your future investment needs.

Marc Kremer, CFA

Shawn Lyons, CFA

Thomas Runkel, CFA

Pururav Thoutireddy, Ph.D.

Portfolio Management Team

 

The foregoing information reflects our analysis, opinions and portfolio holdings as of March 31, 2023, the end of the reporting period. The way we implement our main investment strategies and the resulting portfolio holdings may change depending on factors such as market and economic conditions. These opinions may not be relied upon as investment advice or an offer for a particular security. The information is not a complete analysis of every aspect of any market, state, industry, security or the Fund. Statements of fact are from sources considered reliable, but the investment manager makes no representation or warranty as to their completeness or accuracy. Although historical performance is no guarantee of future results, these insights may help you understand our investment management philosophy.

This annual report for Franklin Municipal Green Bond ETF covers the fiscal year ended March 31, 2023.

Your Fund’s Goal and Main Investments

The Fund seeks to maximize income exempt from federal income taxes, including the federal alternative minimum tax, to the extent consistent with prudent investing and the preservation of shareholders’ capital, by normally investing at least 80% of its net assets in municipal securities whose interest is free from such taxes.¹ In addition, the Fund invests at least 80% of its net assets in municipal green bonds. Municipal “green bonds” are bonds that promote environmental sustainability. The Fund buys predominately municipal securities rated, at the time of purchase, in one of the top four ratings categories by one or more U.S. nationally recognized rating services (or comparable unrated or short-term rated securities).

Performance Overview

During the 12-month period, the Fund posted cumulative total returns of -1.72% based on market price and -1.68% based on net asset value (NAV). In comparison, the Bloomberg Municipal Bond Index, which is a market value-weighted index of tax-exempt, investment-grade bonds with maturities of one year or more, posted a +0.26% cumulative total return for the same period.² You can find more of the Fund’s performance data in the Performance Summary beginning on page 62.

Performance data represent past performance, which does not guarantee future results. Investment return and principal value will fluctuate, and you may have a gain or loss when you sell your shares. Current performance may differ from figures shown. For most recent month-end performance, go to franklintempleton.com or call (800) 342-5236.

Municipal Bond Market Overview

During the 12 months ended March 31, 2023, the U.S. Federal Reserve (Fed) continued to tighten monetary policy

as it tried to get inflation under control without tipping the economy into recession. After several hikes of 75 basis points (bps), the Fed slowed the pace of tightening to 50 bps in December 2022, followed by two 25-bp increases in February and March 2023. This last decision came in the face of regional banking sector turmoil, though fears of widespread contagion quickly abated.

The municipal bond (muni) market witnessed a very challenging year in 2022, primarily driven by the Fed’s monetary policy tightening. High levels of uncertainty led to significant outflows from muni retail vehicles. The first quarter of 2023 saw a reversal of this trend as investors looked for high-quality alternatives amid market volatility. Inflows to munis were met with restricted new issuance, resulting in positive absolute returns year-to-date. Credit fundamentals remained strong, as many muni issuers benefited from federal aid received during the COVID-19 crisis and from the subsequent economic recovery.

For the 12-month period, U.S. fixed income sectors saw better performance relative to equities, as measured by the Standard & Poor’s^® 500 Index, which posted a -7.73% total return.² Investment-grade munis, as measured by the Bloomberg Municipal Bond Index, posted a +0.26% total return, while U.S. Treasuries, as measured by the Bloomberg U.S. Treasury Index, posted a -4.51% total return.² Investment-grade corporate bonds, as measured by the Bloomberg U.S. Corporate Investment Grade Index, posted a -5.55% total return

Portfolio Composition
3/31/23
		% of Total Investments
Utilities			18.04%
Industrial Development Revenue and Pollution Control			12.97%
Transportation			11.28%
Lease			10.47%
Special Tax			9.41%
Local			8.71%
Education			7.68%
Housing			7.15%
Cash			5.02%
Other			4.78%
Health Care			4.20%
Refunded			0.14%
State			0.14%

Investment Strategy

We select securities that we believe will provide the best balance between risk and return within the Fund’s range of allowable investments and we typically invest with a long-term time horizon. This means we generally hold securities in the Fund’s portfolio for income purposes, although we may sell a security at any time if we believe it could help the Fund meet its goal. With a focus on income, individual securities are considered for purchase or sale based on various factors and considerations, including credit profile, risk, structure, pricing, portfolio impact, duration management, restructuring, opportunistic trading and tax loss harvesting opportunities. The Fund is an actively managed exchange-traded fund (ETF) that does not seek to replicate the performance of a specified index.

Manager’s Discussion

During the 12-month period, the portfolio management team invested across the investment-grade quality spectrum to achieve our objective of maximizing income for our investors. As credit spreads within investment grade fluctuate, we will continue to seek the best opportunities in higher and lower quality securities. The yield curve flattened significantly over the reporting period, and the team focused on yield curve positioning in an effort to help our investors achieve high levels of tax-free income over the long term.

Thank you for your participation in Franklin Municipal Green Bond ETF. We look forward to serving your future investment needs.

Ben Barber, CFA

Daniel Workman, CFA

Francisco Rivera

James Conn, CFA

Portfolio Management Team

 

 

The foregoing information reflects our analysis, opinions and portfolio holdings as of March 31, 2023, the end of the reporting period. The way we implement our main investment strategies and the resulting portfolio holdings may change depending on factors such as market and economic conditions. These opinions may not be relied upon as investment advice or an offer for a particular security. The information is not a complete analysis of every aspect of any market, state, industry, security or the Fund. Statements of fact are from sources considered reliable, but the investment manager makes no representation or warranty as to their completeness or accuracy. Although historical performance is no guarantee of future results, these insights may help you understand our investment management philosophy.