SEMIANNUAL REPORT

FRANKLIN TEMPLETON

ETF TRUST

September 30, 2022

 

LOGO

 

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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

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


Contents        
Semiannual Report       
Franklin Disruptive Commerce ETF      2  
Franklin Dynamic Municipal Bond ETF      8  
Franklin Exponential Data ETF      13  
Franklin Genomic Advancements ETF      19  
Franklin High Yield Corporate ETF      25  
Franklin Intelligent Machines ETF      31  
Franklin International Aggregate Bond ETF      37  
Franklin Investment Grade Corporate ETF      43  
Franklin Municipal Green Bond ETF      49  
Franklin Senior Loan ETF      54  
           

    

  
Franklin Systematic Style Premia ETF      60  
Franklin U.S. Core Bond ETF      66  
Franklin U.S. Low Volatility ETF      72  
Franklin U.S. Treasury Bond ETF      78  
Franklin Ultra Short Bond ETF      83  
Financial Highlights and Schedules of Investments      89  
Financial Statements      185  
Notes to Financial Statements      201  
Shareholder Information      224  

 

 

Not FDIC Insured       | May Lose Value       | No Bank Guarantee

 

Visit franklintempleton.com for fund updates and documents, or to find helpful financial planning tools.

 

           
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SEMIANNUAL REPORT

Franklin Disruptive Commerce ETF

 

This semiannual report for Franklin Disruptive Commerce ETF covers the period ended September 30, 2022.

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 six-month period, the Fund posted cumulative total returns of -33.97% based on market price and -33.90% 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 -20.42% 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 5.

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, posted a -20.20% total return for the six months ended September 30, 2022.1 High inflation, rising interest rates and geopolitical instability contributed to a sharp decline in equity prices, particularly as the period progressed. Although

consumer spending continued to rise, deteriorating financial conditions negatively impacted consumer sentiment, which improved slightly at the end of the period after falling in June 2022 to the lowest level in over 60 years.

Elevated inflation was a major concern for both consumers and investors, as inflation accelerated in June 2022 to the highest rate since 1981. 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, although much of that increase abated by period-end. The unemployment rate declined marginally from 3.6% in March 2022 to 3.5% in September 2022 as notable employment gains occurred in the leisure and hospitality and health care sectors. Wage growth remained strong throughout the period, adding to some investors’ inflation concerns.

U.S. gross domestic product contracted in the second quarter of 2022, with the economy technically entering a recession, amid lower investments in inventories and fixed assets. An inventory drawdown, declining residential and business investment and lower levels of government spending contributed to the economic slowdown. Rising interest rates translated to higher borrowing costs for individuals and businesses, which dampened economic activity. Mortgage rates reached the highest level since 2007, and new home construction slowed toward period-end.

In an effort to control inflation, the U.S. Federal Reserve (Fed) continued to raise the federal funds target rate. The Fed raised the federal funds rate at each of its four meetings during the period to end at a range of 3.00%–3.25%. The Fed noted in its September 2022 meeting that inflation remained elevated amid robust job growth and low unemployment. Furthermore, the Fed said it would continue to reduce its bond holdings, and Fed Chair Jerome Powell indicated that reducing inflation was likely to require a period of below-trend growth.

 

 

1. Source: Morningstar. Frank Russell Company is the source and owner of the trademarks, service marks and copyrights related to the Russell Indexes. Russell® is a trademark of Frank Russell Company.

The index is unmanaged and includes reinvestment of any income or distributions. It does not reflect any fees, expenses or sales charges. One cannot invest directly in an index, and an index is not representative of the Fund’s portfolio.

See www.franklintempletondatasources.com for additional data provider information.

The dollar value, number of shares or principal amount, and names of all portfolio holdings are listed in the Fund’s Schedule of Investments (SOI). The SOI begins on page 90.

 

           
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FRANKLIN DISRUPTIVE COMMERCE ETF

 

Porfolio Composition       
9/30/22       
      % of Total
Net Assets
 
Internet & Direct Marketing Retail      24.7%  
IT Services      18.3%  
Software      9.2%  
Trading Companies & Distributors      8.3%  
Hotels, Restaurants & Leisure      6.1%  
Food & Staples Retailing      5.3%  
Road & Rail      4.8%  
Interactive Media & Services      3.7%  
Professional Services      3.6%  
Commercial Services & Supplies      3.3%  
Equity Real Estate Investment Trusts (REITs)      2.8%  
Entertainment      2.3%  
Containers & Packaging      2.2%  
Other      3.2%  
Other Net Assets      2.2%  

 

Top 10 Holdings       
9/30/22       
Company
Sector/Industry
   % of Total
Net Assets
 
Amazon.com Inc.
Internet & Direct Marketing Retail
     10.0%  
Costco Wholesale Corp.
Hypermarkets & Super Centers
     5.3%  
Fastenal Co.
Trading Companies & Distributors
     4.3%  
Adyen NV
Data Processing & Outsourced Services
     4.0%  
W.W. Grainger Inc.
Trading Companies & Distributors
     4.0%  
Mastercard Inc.
Data Processing & Outsourced Services
     3.7%  
Uber Technologies Inc.
Trucking
     3.7%  
Copart Inc.
Diversified Support Services
     3.3%  
ZoomInfo Technologies Inc.
Interactive Media & Services
     3.2%  
CoStar Group Inc.
Research & Consulting Services
     3.1%  

Investment Strategy

We use fundamental, bottom-up research analysis to identify companies positioned to capitalize on disruptive innovation or that are enabling the further development of the disruptive

commerce themes in the markets in which they operate. 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 search for investments across a large number of sectors, we expect to concentrate our investments in consumer discretionary-related industries.

Manager’s Discussion

During the period under review, the portfolio held exposures to nine different equity sectors, all of which produced negative absolute returns. The bulk of the overall decline occurred in the consumer discretionary, information technology (IT), communication services and industrials sectors, which on average comprised about 87% of total net assets. Widespread declines were evident in the consumer discretionary sector, where e-commerce names such as tech giant Amazon.com (focused on e-commerce, cloud computing, online advertising, digital streaming and artificial intelligence), online fashion retailer Revolve Group, food delivery specialist DoorDash and MercadoLibre (Latin America’s largest online marketplace) were standout detractors. Investments in the hotels, restaurants and leisure industry also suffered significant double-digit percentage losses including Airbnb (vacation rental and short-term homestays broker) and Booking Holdings (online travel and related services). Elsewhere in the portfolio, select entertainment industry companies Sea Limited and ROBLOX shed more than half of their equity value. Interactive media and services also fared poorly as all related holdings posted double-digit declines including ZoomInfo Technologies, which provides marketing software and data solutions.

Within IT, all positions in the IT services industry sold off, as did all software industry holdings. Among the top detractors in IT services were Shopify, an e-commerce platform for online stores and retail point-of-sale systems; Dutch e-payment platform provider Adyen; credit card giants Mastercard and Visa; Dlocal (cross-border payments connecting global merchants to emerging markets); and fintech-focused conglomerate Block (formerly Square). In the software space, Bill.com Holdings (cloud-based back-office software) and Unity Software (video game development platform provider) were the worst of nine individual detractors.

Across the entire portfolio, there were only four holdings that aided absolute returns, and their combined contribution was

 

           
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FRANKLIN DISRUPTIVE COMMERCE ETF

 

so small that they had almost no impact on overall performance. The only notable contributor among them was CoStar Group, a leading provider of online real estate marketplaces, information and analytics in the commercial and residential property markets.

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 September 30, 2022, 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, country, 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.

CFA® is a trademark owned by CFA Institute.

 

           
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FRANKLIN DISRUPTIVE COMMERCE ETF

 

Performance Summary as of September 30, 2022

Total return reflects reinvestment of the Fund’s dividends and capital gain distributions, if any, and any unrealized gains or losses. Total returns do not include brokerage commissions that may be payable on secondary market transactions. The performance table does not reflect any taxes that a shareholder would pay on Fund dividends, capital gain distributions, if any, or any realized gains on the sale of Fund shares.

Net asset value or “NAV” is the value of one share of a fund as calculated in accordance with the standard formula for valuing mutual fund shares. Market Price returns typically are based upon the official closing price of the ETF’s shares. Since shares of the Fund did not trade in the secondary market until after the Fund’s inception, for the period from inception to the first day of secondary trading (2/27/20), the NAV of the Fund is used as a proxy for the Market Price to calculate market returns. Market and NAV returns assume that dividends and capital gain distributions have been reinvested at Market Price and NAV.

Your dividend income will vary depending on dividends or interest paid by securities in the Fund’s portfolio, adjusted for operating expenses. Capital gain distributions are net profits realized from the sale of portfolio securities.

Performance as of 9/30/221

 

     Cumulative Total Return2      Average Annual Total Return2  
      Based on
NAV3
     Based on
market price4
     Based on
NAV3
     Based on
market price4
 

6-Month

     -33.90%        -33.97%        -33.90%        -33.97%  

1-Year

     -58.25%        -58.21%        -58.25%        -58.21%  

Since Inception (2/25/20)

     -17.50%        -17.50%        -7.14%        -7.14%  

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.

 

See page 6 for Performance Summary footnotes.

 

           
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FRANKLIN DISRUPTIVE COMMERCE ETF

PERFORMANCE SUMMARY

 

Total Annual Operating Expenses5

 

  0.50%

All investments involve risks, including possible loss of principal. Stock prices fluctuate, sometimes rapidly and dramatically, due to factors affecting individual companies, particular industries or sectors, or general market conditions. The Fund’s investment strategies incorporate the identification of thematic investment opportunities and its performance may be negatively impacted if the investment manager does not correctly identify such opportunities or if the theme develops in an unexpected manner. By focusing its investments in consumer discretionary related industries, the Fund carries much greater risks of adverse developments and price movements in such industries than a fund that invests in a wider variety of industries. Companies operating within consumer discretionary related industries could be affected by, among other things, overall economic conditions, interest rates, disposable income, fluctuating consumer confidence and consumer demand. Many of these companies compete aggressively on price, potentially affecting their long run profitability. Companies within consumer discretionary related industries may have extensive online operations, which could make these companies particularly vulnerable to cyber security risk. Special risks are associated with foreign investing, including currency fluctuations, economic instability and political developments. As a non-diversified fund, the Fund may invest in a relatively small number of issuers which may negatively impact the Fund’s performance and result in greater fluctuation in the value of the Fund’s shares. The manager’s portfolio selection strategy is not solely based on ESG considerations, and therefore the issuers in which the Fund invests may not be considered ESG-focused companies. Integrating ESG considerations into the investment process is not a guarantee that better performance will be achieved. Events such as the spread of deadly diseases, disasters, and financial, political or social disruptions, may heighten risks and adversely affect performance. The Fund’s prospectus also includes a description of the main investment risks.

Russia’s military invasion of Ukraine in February 2022, the resulting responses by the United States and other countries, and the potential for wider conflict could increase volatility and uncertainty in the financial markets and adversely affect regional and global economies. The United States and other countries have imposed broad-ranging economic sanctions on Russia and certain Russian individuals, banking entities and corporations as a response to its invasion of Ukraine. The United States and other countries have also imposed economic sanctions on Belarus and may impose sanctions on other countries that support Russia’s military invasion. These sanctions, as well as any other economic consequences related to the invasion, such as additional sanctions, boycotts or changes in consumer or purchaser preferences or cyberattacks on governments, companies or individuals, may further decrease the value and liquidity of certain Russian securities and securities of issuers in other countries that are subject to economic sanctions related to the invasion.

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

1. The total annual operating expenses are sourced from the Fund’s prospectus available at the time of publication. Actual expenses may be higher and may impact portfolio returns.

2. Total return calculations represent the cumulative and average annual changes in value of an investment over the periods indicated. Return for less than one year, if any, has not been annualized.

3. Assumes reinvestment of distributions based on net asset value.

4. Assumes reinvestment of distributions based on market price.

5. Figures are as stated in the Fund’s current prospectus and may differ from the expense ratios disclosed in the Your Fund’s Expenses and Financial Highlights sections in this report.

See www.franklintempletondatasources.com for additional data provider information.

 

           
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Your Fund’s Expenses

 

As a Fund shareholder, you can incur two types of costs: (1) transaction costs, including brokerage commissions on purchases and sales of Fund shares; and (2) ongoing Fund costs, including management fees and other Fund expenses. All funds have ongoing costs, sometimes referred to as operating expenses. The table below shows ongoing costs of investing in the Fund and can help you understand these costs and compare them with those of other funds. The table assumes a $1,000 investment held for the six months indicated.

Actual Fund Expenses

The table below provides information about actual account values and actual expenses in the columns under the heading “Actual.” In these columns the Fund’s actual return, which includes the effect of Fund expenses, is used to calculate the “Ending Account Value.” You can estimate the expenses you paid during the period by following these steps (of course, your account value and expenses will differ from those in this illustration): Divide your account value by $1,000 (if your account had an $8,600 value, then $8,600 ÷ $1,000 = 8.6). Then multiply the result by the number in the row under the headings “Actual” and “Expenses Paid During Period” (if Actual Expenses Paid During Period were $7.50, then 8.6 × $7.50 = $64.50). In this illustration, the actual expenses paid this period are $64.50.

Hypothetical Example for Comparison with Other Funds

Under the heading “Hypothetical” in the table, information is provided about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. This information may not be used to estimate the actual ending account balance or expenses you paid for the period, but it can help you compare ongoing costs of investing in the Fund with those of other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds.

Please note that expenses shown in the table are meant to highlight ongoing costs and do not reflect any transactional costs. Therefore, information under the heading “Hypothetical” is useful in comparing ongoing costs only, and will not help you compare total costs of owning different funds. In addition, if transactional costs were included, your total costs would have been higher.

 

     

Actual
(actual return after expenses)

    Hypothetical
(5% annual return before expenses)
       
Beginning
Account
Value 4/1/22
    Ending
Account
Value 9/30/22
    Expenses
Paid During
Period
4/1/22–9/30/221
    Ending
Account
Value 9/30/22
    Expenses
Paid During
Period
4/1/22–9/30/221
    Net Annualized
Expense Ratio
 
  $1,000.00     $ 661.00     $ 2.08     $ 1,022.56     $ 2.54       0.50

1. Expenses are equal to the annualized expense ratio for the six-month period as indicated above—in the far right column—multiplied by the simple average account value over the period indicated, and then multiplied by 183/365 to reflect the one-half year period.

 

           
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Franklin Dynamic Municipal Bond ETF

 

This semiannual report for Franklin Dynamic Municipal Bond ETF covers the period ended September 30, 2022.

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 that pay interest free from such taxes.1The 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 six-month period, the Fund posted cumulative total returns of -7.10% based on market price and -6.86% 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, posted a -4.09% 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 10.

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 six months ending September 30, 2022, multi-decade high inflation persisted throughout much of the period as a strong U.S. job market and ample consumer savings

pushed demand beyond the ability of businesses to increase supply. In response, the U.S. Federal Reserve (Fed) continued to raise short-term interest rates at a rapid pace, leading U.S. Treasury (UST) yields to rise sharply.

Recessionary concerns grew as the market lowered its confidence in the Fed’s ability to engineer a soft landing that would bring inflation down without causing a severe economic contraction.

Following one of the worst starts to a new year in 2022, the municipal bond (muni) market continued to perform poorly. High levels of fixed income market volatility, a general risk-off shift in sentiment, and poor performance pushed year-to-date outflows from muni retail vehicles ever higher, leading market technical conditions to further deteriorate. So far this year, net issuance has remained light, lagging well behind historic norms. Fundamentals remained strong, however, with many issuers reporting surpluses for 2022 as federal government transfers bolstered revenues.

For the six-month period, U.S. fixed income sectors performed better relative to equities, as measured by the Standard & Poor’s 500 Index, which posted a -20.20% total return for the period.2 Investment-grade munis, as measured by the Bloomberg Municipal Bond Index, posted a -6.30% total return, and USTs, as measured by the Bloomberg U.S. Treasury Index, posted a -7.96% total return.2 Investment-grade corporate bonds, as measured by the Bloomberg U.S. Corporate Bond Index, posted a -11.95% total return.2

 

1. Dividends are generally subject to state and local taxes, if any. For investors subject to alternative minimum tax, a small portion of Fund dividends may be taxable.

Distributions of capital gains are generally taxable. To avoid imposition of 28% backup withholding on all Fund distributions and redemption proceeds, U.S. investors must be properly certified on Form W-9 and non-U.S. investors on Form W-8BEN.

2. Source: Morningstar. Treasuries, if held to maturity, offer a fixed rate of return and a fixed principal value; their interest payments and principal are guaranteed.

The index is unmanaged and includes reinvestment of any income or distributions. It does not reflect any fees, expenses or sales charges. One cannot invest directly in an index, and an index is not representative of the Fund’s portfolio.

See www.franklintempletondatasources.com for additional data provider information.

The dollar value, number of shares or principal amount, and names of all portfolio holdings are listed in the Fund’s Schedule of Investments (SOI). The SOI begins on page 93.

 

           
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FRANKLIN DYNAMIC MUNICIPAL BOND ETF

 

Portfolio Composition       
9/30/22       
      % of Total
Investments
 

Special Tax

     26.61%  

Industrial Development Revenue and Pollution Control

     17.53%  

Health Care

     10.78%  

Education

     8.46%  

Transportation

     7.79%  

Lease

     7.64%  

Local

     6.91%  

State

     6.25%  

Housing

     3.29%  

Other

     2.36%  

Utilities

     2.24%  

Refunded

     0.39%  

Cash

     (0.23)%  

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. 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

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 September 30, 2022, 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, country, 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.

 

           
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FRANKLIN DYNAMIC MUNICIPAL BOND ETF

 

Performance Summary as of September 30, 2022

Total return reflects reinvestment of the Fund’s dividends and capital gain distributions, if any, and any unrealized gains or losses. Total returns do not include brokerage commissions that may be payable on secondary market transactions. The performance table does not reflect any taxes that a shareholder would pay on Fund dividends, capital gain distributions, if any, or any realized gains on the sale of Fund shares.

Net asset value or “NAV” is the value of one share of a fund as calculated in accordance with the standard formula for valuing mutual fund shares. Market Price returns typically are based upon the official closing price of the ETF’s shares. Since shares of the Fund did not trade in the secondary market until after the Fund’s inception, for the period from inception to the first day of secondary trading (9/5/17), the NAV of the Fund is used as a proxy for the Market Price to calculate market returns. Market and NAV returns assume that dividends and capital gain distributions have been reinvested at Market Price and NAV.

Your dividend income will vary depending on dividends or interest paid by securities in the Fund’s portfolio, adjusted for operating expenses. Capital gain distributions are net profits realized from the sale of portfolio securities.

Performance as of 9/30/221

 

     Cumulative Total Return2      Average Annual Total Return2  
      Based on
NAV3
     Based on
market price4
     Based on
NAV3
     Based on
market price4
 

6-Month

     -6.86%        -7.10%        -6.86%        -7.10%  

1-Year

     -12.48%        -12.74%        -12.48%        -12.74%  

5-Year

     +3.00%        +2.40%        +0.59%        +0.47%  

Since Inception (8/31/17)

     +2.55%        +2.31%        +0.50%        +0.45%  

 

     30-Day Standardized Yield6      Taxable Equivalent 30-Day
Standardized Yield7
 
Distribution Rate5    (with fee waiver)      (without fee waiver)      (with fee waiver)      (without fee waiver)  

3.51%

     3.81%        3.39%        6.44%        5.73%  

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.

See page 11 for Performance Summary footnotes.

 

           
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PERFORMANCE SUMMARY

 

Distributions (4/1/22–9/30/22)

Net Investment

Income

$0.322419

Total Annual Operating Expenses8

 

With Fee

Waiver

0.30%

All investments involve risks, including possible loss of principal. Because municipal bonds are sensitive to interest-rate movements, the Fund’s yield and share price will fluctuate with market conditions. Bond prices generally move in the opposite direction of interest rates. Thus, as prices of bonds in the Fund adjust to a rise in interest rates, the Fund’s share price may decline. The Fund may invest in lower-rated bonds which include higher risk of default and loss of principal. Changes in the credit rating of a bond, or in the credit rating or financial strength of a bond’s issuer, insurer or guarantor, may affect the bond’s value. The Fund may invest a significant part of its assets in municipal securities that finance similar types of projects, such as utilities, hospitals, higher education and transportation. A change that affects one project would likely affect all similar projects, thereby increasing market risk. The manager’s portfolio selection strategy is not solely based on ESG considerations, and therefore the issuers in which the Fund invests may not be considered ESG-focused companies. Integrating ESG considerations into the investment process is not a guarantee that better performance will be achieved. Events such as the spread of deadly diseases, disasters, and financial, political or social disruptions, may heighten risks and adversely affect performance. The Fund’s prospectus also includes a description of the main investment risks.

Russia’s military invasion of Ukraine in February 2022, the resulting responses by the United States and other countries, and the potential for wider conflict could increase volatility and uncertainty in the financial markets and adversely affect regional and global economies. The United States and other countries have imposed broad-ranging economic sanctions on Russia and certain Russian individuals, banking entities and corporations as a response to its invasion of Ukraine. The United States and other countries have also imposed economic sanctions on Belarus and may impose sanctions on other countries that support Russia’s military invasion. These sanctions, as well as any other economic consequences related to the invasion, such as additional sanctions, boycotts or changes in consumer or purchaser preferences or cyberattacks on governments, companies or individuals, may further decrease the value and liquidity of certain Russian securities and securities of issuers in other countries that are subject to economic sanctions related to the invasion.

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

1. Gross expenses are the Fund’s total annual operating expenses and are sourced from the Fund’s prospectus available at the time of publication. Actual expenses may be higher and may impact portfolio returns. Net expenses reflect contractual fee waivers, expense caps and/or reimbursements, which cannot be terminated prior to 7/31/23 without Board consent.

2. Total return calculations represent the cumulative and average annual changes in value of an investment over the periods indicated. Return for less than one year, if any, has not been annualized.

3. Assumes reinvestment of distributions based on net asset value.

4. Assumes reinvestment of distributions based on market price.

5. Distribution rate is based on an annualization of the September dividend and the NAV per share on 9/30/22.

6. The Fund’s 30-day standardized yield is calculated over a trailing 30-day period using the yield to maturity on bonds and/or the dividends accrued on stocks. It may not equal the Fund’s actual income distribution rate, which reflects the Fund’s past dividends paid to shareholders.

7. Taxable equivalent yield assumes the 2022 maximum federal income tax rate of 37.00% plus 3.80% Medicare tax.

8. Figures are as stated in the Fund’s current prospectus and may differ from the expense ratios disclosed in the Your Fund’s Expenses and Financial Highlights sections in this report.

See www.franklintempletondatasources.com for additional data provider information.

 

           
franklintempleton.com  

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FRANKLIN DYNAMIC MUNICIPAL BOND ETF

 

Your Fund’s Expenses

 

As a Fund shareholder, you can incur two types of costs: (1) transaction costs, including brokerage commissions on purchases and sales of Fund shares; and (2) ongoing Fund costs, including management fees and other Fund expenses. All funds have ongoing costs, sometimes referred to as operating expenses. The table below shows ongoing costs of investing in the Fund and can help you understand these costs and compare them with those of other funds. The table assumes a $1,000 investment held for the six months indicated.

Actual Fund Expenses

The table below provides information about actual account values and actual expenses in the columns under the heading “Actual.” In these columns the Fund’s actual return, which includes the effect of Fund expenses, is used to calculate the “Ending Account Value.” You can estimate the expenses you paid during the period by following these steps (of course, your account value and expenses will differ from those in this illustration): Divide your account value by $1,000 (if your account had an $8,600 value, then $8,600 ÷ $1,000 = 8.6). Then multiply the result by the number in the row under the headings “Actual” and “Expenses Paid During Period” (if Actual Expenses Paid During Period were $7.50, then 8.6 × $7.50 = $64.50). In this illustration, the actual expenses paid this period are $64.50.

Hypothetical Example for Comparison with Other Funds

Under the heading “Hypothetical” in the table, information is provided about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. This information may not be used to estimate the actual ending account balance or expenses you paid for the period, but it can help you compare ongoing costs of investing in the Fund with those of other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds.

Please note that expenses shown in the table are meant to highlight ongoing costs and do not reflect any transactional costs. Therefore, information under the heading “Hypothetical” is useful in comparing ongoing costs only, and will not help you compare total costs of owning different funds. In addition, if transactional costs were included, your total costs would have been higher.

 

     

Actual

(actual return after expenses)

    Hypothetical
(5% annual return before expenses)
       
Beginning
Account
Value 4/1/22
    Ending
Account
Value 9/30/22
    Expenses
Paid During
Period
4/1/22–9/30/221
    Ending
Account
Value 9/30/22
    Expenses
Paid During
Period
4/1/22–9/30/221
    Net Annualized
Expense Ratio
 
  $1,000.00     $ 931.40     $ 1.45     $ 1,023.56     $ 1.52       0.30

1. Expenses are equal to the annualized expense ratio for the six-month period as indicated above—in the far right column—multiplied by the simple average account value over the period indicated, and then multiplied by 183/365 to reflect the one-half year period.

 

           
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Franklin Exponential Data ETF

 

This semiannual report for Franklin Exponential Data ETF covers the period ended September 30, 2022.

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 are focused on, or that the investment manager believes will 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 six-month period, the Fund posted cumulative total returns of -30.78% based on market price and -30.68% 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 -20.42% 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 16.

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, posted a -20.20% total return for the six months ended September 30, 2022.1 High inflation, rising interest rates and geopolitical instability contributed to a sharp decline in equity prices, particularly as the period progressed. Although consumer spending continued to rise, deteriorating financial

conditions negatively impacted consumer sentiment, which improved slightly at the end of the period after falling in June 2022 to the lowest level in over 60 years.

Elevated inflation was a major concern for both consumers and investors, as inflation accelerated in June 2022 to the highest rate since 1981. 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, although much of that increase abated by period-end. The unemployment rate declined marginally from 3.6% in March 2022 to 3.5% in September 2022 as notable employment gains occurred in the leisure and hospitality and health care sectors. Wage growth remained strong throughout the period, adding to some investors’ inflation concerns.

U.S. gross domestic product contracted in the second quarter of 2022, with the economy technically entering a recession, amid lower investments in inventories and fixed assets. An inventory drawdown, declining residential and business investment and lower levels of government spending contributed to the economic slowdown. Rising interest rates translated to higher borrowing costs for individuals and businesses, which dampened economic activity. Mortgage rates reached the highest level since 2007, and new home construction slowed toward period-end.

In an effort to control inflation, the U.S. Federal Reserve (Fed) continued to raise the federal funds target rate. The Fed raised the federal funds rate at each of its four meetings during the period to end at a range of 3.00%–3.25%. The Fed noted in its September 2022 meeting that inflation remained elevated amid robust job growth and low unemployment. Furthermore, the Fed said it would continue to reduce its bond holdings, and Fed Chair Jerome Powell indicated that reducing inflation was likely to require a period of below-trend growth.

 

1. Source: Morningstar.

The index is unmanaged and includes reinvestment of any income or distributions. It does not reflect any fees, expenses or sales charges. One cannot invest directly in an index, and an index is not representative of the Fund’s portfolio.

See www.franklintempletondatasources.com for additional data provider information.

The dollar value, number of shares or principal amount, and names of all portfolio holdings are listed in the Fund’s Schedule of Investments (SOI). The SOI begins on page 106.

 

           
franklintempleton.com  

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FRANKLIN EXPONENTIAL DATA ETF

 

Porfolio Composition       
9/30/22       
      % of Total
Net Assets
 
Software      49.0%  
IT Services      15.7%  
Equity Real Estate Investment Trusts (REITs)      11.7%  
Interactive Media & Services      8.2%  
Capital Markets      6.3%  
Wireless Telecommunication Services      3.3%  
Communications Equipment      2.1%  
Electronic Equipment, Instruments & Components      2.0%  
Other      1.6%  
Short-Term Investments & Other Net Assets      0.1%  

 

Top 10 Holdings

      
9/30/22       
Company
Sector/Industry
   % of Total
Net Assets
 
Microsoft Corp.
Information Technology
     6.2%  
Datadog Inc., A
Information Technology
     5.2%  
Alphabet Inc., A
Communication Services
     5.0%  
Snowflake Inc., A
Information Technology
     4.9%  
MongoDB Inc.
Information Technology
     4.8%  
Crowdstrike Holdings Inc., A
Information Technology
     4.1%  
Cloudflare Inc., A
Information Technology
     4.1%  
Palo Alto Networks Inc.
Information Technology
     4.0%  
Equinix Inc.
Real Estate
     4.0%  
SBA Communications Corp.
Real Estate
     3.9%  

Investment Strategy

We use fundamental, bottom-up research analysis to identify 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. We 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 search for investments across a large number of sectors, we expect to concentrate our investments in information technology-related industries.

Manager’s Discussion

During the six-month period under review, widespread declines occurred across nearly all sector and industry allocations, and they were most acutely felt in the software and information technology services industries. All related holdings sold off, including key detractors such as MongoDB, a documentation database tool that helps queries work flexibly; cloud-based network performance and security specialist Cloudflare; and Datadog, which provides a data analytics and observability services to cloud-scale operations and applications.

Among communication services sector stocks, Google parent company Alphabet, and ZoomInfo Technologies, which provides marketing software and data solutions, sustained significant losses in the interactive media and services industry. To a lesser extent, the Fund also posted double-digit percentage declines in four smaller sector allocations: real estate (anchored by Crown Castle International, a real estate investment trust for shared communications infrastructure), financials (where financial information and analytics provider S&P Global was the worst of four detractors), health care (featuring a sharp selloff in glucose monitoring system maker DexCom), and industrials (where consumer credit reporting agency TransUnion was the sole investment).

Turning to contributors, only three individual stocks added to absolute returns, and their combined impact was nearly inconsequential given the magnitude of declines elsewhere in the portfolio. These minor outliers to the upside were wireless communication services provider T-Mobile US, electronics test and measurement equipment and software maker Keysight Technologies, and online gaming and game creation platform ROBLOX (bought and sold during the period).

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

 

           
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FRANKLIN EXPONENTIAL DATA ETF

 

 

The foregoing information reflects our analysis, opinions and portfolio holdings as of September 30, 2022, 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, country, 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.

 

           
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FRANKLIN EXPONENTIAL DATA ETF

 

Performance Summary as of September 30, 2022

Total return reflects reinvestment of the Fund’s dividends and capital gain distributions, if any, and any unrealized gains or losses. Total returns do not include brokerage commissions that may be payable on secondary market transactions. The performance table does not reflect any taxes that a shareholder would pay on Fund dividends, capital gain distributions, if any, or any realized gains on the sale of Fund shares.

Net asset value or “NAV” is the value of one share of a fund as calculated in accordance with the standard formula for valuing mutual fund shares. Market Price returns typically are based upon the official closing price of the ETF’s shares. Since shares of the Fund did not trade in the secondary market until after the Fund’s inception, for the period from inception to the first day of secondary trading (1/14/21), the NAV of the Fund is used as a proxy for the Market Price to calculate market returns. Market and NAV returns assume that dividends and capital gain distributions have been reinvested at Market Price and NAV.

Your dividend income will vary depending on dividends or interest paid by securities in the Fund’s portfolio, adjusted for operating expenses. Capital gain distributions are net profits realized from the sale of portfolio securities.

Performance as of 9/30/221

 

     Cumulative Total Return2      Average Annual Total Return2  
      Based on
NAV3
     Based on
market price4
     Based on
NAV3
     Based on
market price4
 

6-Month

     -30.68%        -30.78%        -30.68%        -30.78%  

1-Year

     -41.86%        -41.91%        -41.86%        -41.91%  

Since Inception (1/12/21)

     -36.84%        -36.84%        -23.50%        -23.50%  

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.

See page 17 for Performance Summary footnotes.

 

           
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FRANKLIN EXPONENTIAL DATA ETF

PERFORMANCE SUMMARY

 

Total Annual Operating Expenses5

 

  0.50%

All investments involve risks, including possible loss of principal. Stock prices fluctuate, sometimes rapidly and dramatically, due to factors affecting individual companies, particular industries or sectors, or general market conditions. The Fund’s investment strategies incorporate the identification of thematic investment opportunities and its performance may be negatively impacted if the investment manager does not correctly identify such opportunities or if the theme develops in an unexpected manner. By focusing its investments in information technology related industries, the Fund carries much greater risks of adverse developments and price movements in such industries than a Fund that invests in a wider variety of industries. Companies operating within information technology related industries may be affected by worldwide technological developments, the success of their products and services (which may be outdated quickly), anticipated products or services that are delayed or cancelled, and investor perception of the company and/or its products or services. These companies typically face intense competition and potentially rapid product obsolescence. They may also have limited product lines, markets, financial resources or personnel. Technology companies are also heavily dependent on intellectual property rights and may be adversely affected by loss or impairment of those rights. There can be no assurance these companies will be able to successfully protect their intellectual property to prevent the misappropriation of their technology, or that competitors will not develop technology that is substantially similar or superior to such companies’ technology. These companies typically engage in significant amounts of spending on research and development, and there is no guarantee that the products or services produced by these companies will be successful. Technology companies are also potential targets for cyberattacks, which can have a materially adverse impact on the performance of these companies. In addition, companies operating within the technology sector may develop and/or utilize artificial intelligence. Artificial intelligence technology could face increasing regulatory scrutiny in the future, which may limit the development of this technology and impede the growth of companies that develop and/or utilize this technology. Similarly, the collection of data from consumers and other sources could face increased scrutiny as regulators consider how the data is collected, stored, safeguarded and used. The customers and/or suppliers of technology companies may be concentrated in a particular country, region or industry. Any adverse event affecting one of these countries, regions or industries could have a negative impact on these companies. Special risks are associated with foreign investing, including currency fluctuations, economic instability and political developments. The manager’s portfolio selection strategy is not solely based on ESG considerations, and therefore the issuers in which the Fund invests may not be considered ESG-focused companies. Integrating ESG considerations into the investment process is not a guarantee that better performance will be achieved. As a non-diversified fund, the Fund may invest in a relatively small number of issuers and, as a result, be subject to greater risk of loss with respect to its portfolio securities. Events such as the spread of deadly diseases, disasters, and financial, political or social disruptions, may heighten risks and adversely affect performance. The Fund’s prospectus also includes a description of the main investment risks.

Russia’s military invasion of Ukraine in February 2022, the resulting responses by the United States and other countries, and the potential for wider conflict could increase volatility and uncertainty in the financial markets and adversely affect regional and global economies. The United States and other countries have imposed broad-ranging economic sanctions on Russia and certain Russian individuals, banking entities and corporations as a response to its invasion of Ukraine. The United States and other countries have also imposed economic sanctions on Belarus and may impose sanctions on other countries that support Russia’s military invasion. These sanctions, as well as any other economic consequences related to the invasion, such as additional sanctions, boycotts or changes in consumer or purchaser preferences or cyberattacks on governments, companies or individuals, may further decrease the value and liquidity of certain Russian securities and securities of issuers in other countries that are subject to economic sanctions related to the invasion.

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

1. The total annual operating expenses are sourced from the Fund’s prospectus available at the time of publication. Actual expenses may be higher and may impact portfolio returns.

2. Total return calculations represent the cumulative and average annual changes in value of an investment over the periods indicated. Return for less than one year, if any, has not been annualized.

3. Assumes reinvestment of distributions based on net asset value.

4. Assumes reinvestment of distributions based on market price.

5. Figures are as stated in the Fund’s current prospectus and may differ from the expense ratios disclosed in the Your Fund’s Expenses and Financial Highlights sections in this report.

See www.franklintempletondatasources.com for additional data provider information.

 

           
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Semiannual Report

             17


FRANKLIN EXPONENTIAL DATA ETF

 

Your Fund’s Expenses

 

As a Fund shareholder, you can incur two types of costs: (1) transaction costs, including brokerage commissions on purchases and sales of Fund shares; and (2) ongoing Fund costs, including management fees and other Fund expenses. All funds have ongoing costs, sometimes referred to as operating expenses. The table below shows ongoing costs of investing in the Fund and can help you understand these costs and compare them with those of other funds. The table assumes a $1,000 investment held for the six months indicated.

Actual Fund Expenses

The table below provides information about actual account values and actual expenses in the columns under the heading “Actual.” In these columns the Fund’s actual return, which includes the effect of Fund expenses, is used to calculate the “Ending Account Value.” You can estimate the expenses you paid during the period by following these steps (of course, your account value and expenses will differ from those in this illustration): Divide your account value by $1,000 (if your account had an $8,600 value, then $8,600 ÷ $1,000 = 8.6). Then multiply the result by the number in the row under the headings “Actual” and “Expenses Paid During Period” (if Actual Expenses Paid During Period were $7.50, then 8.6 × $7.50 = $64.50). In this illustration, the actual expenses paid this period are $64.50.

Hypothetical Example for Comparison with Other Funds

Under the heading “Hypothetical” in the table, information is provided about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. This information may not be used to estimate the actual ending account balance or expenses you paid for the period, but it can help you compare ongoing costs of investing in the Fund with those of other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds.

Please note that expenses shown in the table are meant to highlight ongoing costs and do not reflect any transactional costs. Therefore, information under the heading “Hypothetical” is useful in comparing ongoing costs only, and will not help you compare total costs of owning different funds. In addition, if transactional costs were included, your total costs would have been higher.

 

     

Actual

(actual return after expenses)

   

Hypothetical

(5% annual return before expenses)

       
Beginning
Account
Value 4/1/22
    Ending
Account
Value 9/30/22
   

Expenses
Paid During
Period

4/1/22–9/30/221

    Ending
Account
Value 9/30/22
   

Expenses
Paid During
Period

4/1/22–9/30/221

    Net Annualized
Expense Ratio
 
  $1,000.00     $ 693.20     $ 2.08     $ 1,022.61     $ 2.48       0.49

1. Expenses are equal to the annualized expense ratio for the six-month period as indicated above—in the far right column—multiplied by the simple average account value over the period indicated, and then multiplied by 183/365 to reflect the one-half year period.

 

           
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Franklin Genomic Advancements ETF

 

This semiannual report for Franklin Genomic Advancements ETF covers the period ended September 30, 2022.

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 are focused on, that the investment manager believes will benefit from, extending and enhancing the quality of human and animal life through technological or scientific 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 six-month period, the Fund posted cumulative total returns of -19.66% based on market price and -19.78% 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 -20.42% 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 22.

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, posted a -20.20% total return for the six months ended September 30, 2022.1 High inflation, rising interest rates and geopolitical instability contributed to a sharp decline in equity prices, particularly as the period progressed. Although consumer spending continued to rise, deteriorating financial

conditions negatively impacted consumer sentiment, which improved slightly at the end of the period after falling in June 2022 to the lowest level in over 60 years.

Elevated inflation was a major concern for both consumers and investors, as inflation accelerated in June 2022 to the highest rate since 1981. 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, although much of that increase abated by period-end. The unemployment rate declined marginally from 3.6% in March 2022 to 3.5% in September 2022 as notable employment gains occurred in the leisure and hospitality and health care sectors. Wage growth remained strong throughout the period, adding to some investors’ inflation concerns.

U.S. gross domestic product contracted in the second quarter of 2022, with the economy technically entering a recession, amid lower investments in inventories and fixed assets. An inventory drawdown, declining residential and business investment and lower levels of government spending contributed to the economic slowdown. Rising interest rates translated to higher borrowing costs for individuals and businesses, which dampened economic activity. Mortgage rates reached the highest level since 2007, and new home construction slowed toward period-end.

In an effort to control inflation, the U.S. Federal Reserve (Fed) continued to raise the federal funds target rate. The Fed raised the federal funds rate at each of its four meetings during the period to end at a range of 3.00%–3.25%. The Fed noted in its September 2022 meeting that inflation remained elevated amid robust job growth and low unemployment. Furthermore, the Fed said it would continue to reduce its bond holdings, and Fed Chair Jerome Powell indicated that reducing inflation was likely to require a period of below-trend growth.

 

1. Source: Morningstar.

The index is unmanaged and includes reinvestment of any income or distributions. It does not reflect any fees, expenses or sales charges. One cannot invest directly in an index, and an index is not representative of the Fund’s portfolio.

See www.franklintempletondatasources.com for additional data provider information.

The dollar value, number of shares or principal amount, and names of all portfolio holdings are listed in the Fund’s Schedule of Investments (SOI). The SOI begins on page 108.

 

           
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FRANKLIN GENOMIC ADVANCEMENTS ETF

 

Porfolio Composition       
9/30/22       
      % of Total
Net Assets
 
Life Sciences Tools & Services      43.3%  
Biotechnology      33.0%  
Pharmaceuticals      6.8%  
Health Care Providers & Services      5.1%  
Health Care Equipment & Supplies      3.6%  
Chemicals      3.5%  
Other      3.7%  
Other Net Assets      1.0%  

 

Top 10 Holdings       
9/30/22       
Company
Sector/Industry
   % of Total
Net Assets
 
Repligen Corp.
Life Sciences Tools & Services
     6.3%  
Danaher Corp.
Health Care Equipment
     6.0%  
Thermo Fisher Scientific Inc.
Life Sciences Tools & Services
     6.0%  
Sartorius AG, 0.35%
Health Care Equipment
     3.6%  
Medpace Holdings Inc.
Life Sciences Tools & Services
     3.4%  
Vertex Pharmaceuticals Inc.
Biotechnology
     3.4%  
Regeneron Pharmaceuticals Inc.
Biotechnology
     3.3%  
Samsung Biologics Co. Ltd.
Life Sciences Tools & Services
     3.1%  
Guardant Health Inc.
Health Care Services
     3.0%  
Corteva Inc.
Fertilizers & Agricultural Chemicals
     3.0%  

Investment Strategy

We use fundamental, bottom-up research analysis to identify companies positioned to capitalize on disruptive innovation or are enabling the further development of the genomic advancements theme in the markets in which they operate. We 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 search for investments across a large number of sectors, we expect to concentrate our investments in health care-related industries.

Manager’s Discussion

During the six-month period under review, all of the Fund’s core areas of investment—life sciences tools and services, biotechnology and pharmaceuticals—experienced nearly across-the-board absolute declines under bear market conditions. Some of our larger positions in the life sciences tools and services industry had a disproportionately negative impact on returns including Lonza Group, a contract manufacturer for the pharmaceuticals industry; Avantor, a chemicals and materials company that supplies the life sciences, advanced technologies and applied materials industries; Thermo Fisher Scientific, which makes analytical laboratory instruments and bioprocessing tools; and Charles River Laboratories International, which specializes in outsourced preclinical research for the biopharma industry. Within the biotechnology industry, our sizable positions in mRNA vaccine developer Moderna, and Intellia Therapeutics, which develops therapeutics using a CRISPR gene editing system, were at the top of an extensive list of detractors, while Catalent (global provider of outsourced drug development and drug manufacturing) and biopharma-ceutical giant AstraZeneca were the standout detractors in the pharmaceuticals industry.

In the information technology sector, shares of semiconductor chipmaker NVIDIA lost more than half of their value, and we eventually liquidated this holding before the end of September. To a lesser extent, returns were also negative across most of our smaller industry allocations including health care-focused real estate investments trusts, where Alexandria Real Estate Equities was the sole position; health care services; health care technology; fertilizers and agricultural chemicals; and health care equipment (not held at period-end). When combined, these holdings comprised about 11% of total net assets at the end of September.

Turning to contributors, only a few individual stocks were spared during the prolonged selloff that characterized most of the April–September period. Among the outliers to the upside were Vertex Pharmaceuticals, which develops and markets drugs for cystic fibrosis and gene-editing drugs for blood diseases, and Eli Lilly, a multinational pharma. Avid Biosciences, a pure biologics contract development and manufacturing organization, and a handful of other stocks were also net contributors, but their combined positive impact was nearly insignificant given the magnitude of the declines across the rest of the portfolio.

 

           
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FRANKLIN GENOMIC ADVANCEMENTS ETF

 

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 September 30, 2022, 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, country, 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.

 

           
franklintempleton.com  

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FRANKLIN GENOMIC ADVANCEMENTS ETF

 

Performance Summary as of September 30, 2022

Total return reflects reinvestment of the Fund’s dividends and capital gain distributions, if any, and any unrealized gains or losses. Total returns do not include brokerage commissions that may be payable on secondary market transactions. The performance table does not reflect any taxes that a shareholder would pay on Fund dividends, capital gain distributions, if any, or any realized gains on the sale of Fund shares.

Net asset value or “NAV” is the value of one share of a fund as calculated in accordance with the standard formula for valuing mutual fund shares. Market Price returns typically are based upon the official closing price of the ETF’s shares. Since shares of the Fund did not trade in the secondary market until after the Fund’s inception, for the period from inception to the first day of secondary trading (2/27/20), the NAV of the Fund is used as a proxy for the Market Price to calculate market returns. Market and NAV returns assume that dividends and capital gain distributions have been reinvested at Market Price and NAV.

Your dividend income will vary depending on dividends or interest paid by securities in the Fund’s portfolio, adjusted for operating expenses. Capital gain distributions are net profits realized from the sale of portfolio securities.

Performance as of 9/30/221

 

     Cumulative Total Return2      Average Annual Total Return2  
      Based on
NAV3
     Based on
market price4
     Based on
NAV3
     Based on
market price4
 

6-Month

     -19.78%        -19.66%        -19.78%        -19.66%  

1-Year

     -43.08%        -43.17%        -43.08%        -43.17%  

Since Inception (2/25/20)

     +19.16%        +19.08%        +6.98%        +6.95%  

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.

See page 23 for Performance Summary footnotes.

 

           
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FRANKLIN GENOMIC ADVANCEMENTS ETF

PERFORMANCE SUMMARY

 

Total Annual Operating Expenses5

 

  0.50%

All investments involve risks, including possible loss of principal. Stock prices fluctuate, sometimes rapidly and dramatically, due to factors affecting individual companies, particular industries or sectors, or general market conditions. The Fund’s investment strategies incorporate the identification of thematic investment opportunities and its performance may be negatively impacted if the investment manager does not correctly identify such opportunities or if the theme develops in an unexpected manner. By focusing its investments in health care related industries, the Fund carries much greater risks of adverse developments and price movements in such industries than a fund that invests in a wider variety of industries. Companies operating within health care related industries face intense competition and potentially rapid product obsolescence. These companies are also heavily dependent on intellectual property rights and may be adversely affected by loss or impairment of those rights. These companies typically engage in significant amounts of spending on research and development, and there is no guarantee that the products or services produced by these companies will be successful, or that competitors will not develop technology that is substantially similar or superior to such companies’ technology. The field of genomic science could face increasing regulatory scrutiny in the future, which may limit the development of this technology and impede the growth of companies that develop and/or utilize this technology. Special risks are associated with foreign investing, including currency fluctuations, economic instability and political developments. As a non-diversified fund, the Fund may invest in a relatively small number of issuers which may negatively impact the Fund’s performance and result in greater fluctuation in the value of the Fund’s shares. The manager’s portfolio selection strategy is not solely based on ESG considerations, and therefore the issuers in which the Fund invests may not be considered ESG-focused companies. Integrating ESG considerations into the investment process is not a guarantee that better performance will be achieved. Events such as the spread of deadly diseases, disasters, and financial, political or social disruptions, may heighten risks and adversely affect performance. The Fund’s prospectus also includes a description of the main investment risks.

Russia’s military invasion of Ukraine in February 2022, the resulting responses by the United States and other countries, and the potential for wider conflict could increase volatility and uncertainty in the financial markets and adversely affect regional and global economies. The United States and other countries have imposed broad-ranging economic sanctions on Russia and certain Russian individuals, banking entities and corporations as a response to its invasion of Ukraine. The United States and other countries have also imposed economic sanctions on Belarus and may impose sanctions on other countries that support Russia’s military invasion. These sanctions, as well as any other economic consequences related to the invasion, such as additional sanctions, boycotts or changes in consumer or purchaser preferences or cyberattacks on governments, companies or individuals, may further decrease the value and liquidity of certain Russian securities and securities of issuers in other countries that are subject to economic sanctions related to the invasion.

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

1. The total annual operating expenses are sourced from the Fund’s prospectus available at the time of publication. Actual expenses may be higher and may impact portfolio returns.

2. Total return calculations represent the cumulative and average annual changes in value of an investment over the periods indicated. Return for less than one year, if any, has not been annualized.

3. Assumes reinvestment of distributions based on net asset value.

4. Assumes reinvestment of distributions based on market price.

5. Figures are as stated in the Fund’s current prospectus and may differ from the expense ratios disclosed in the Your Fund’s Expenses and Financial Highlights sections in this report.

See www.franklintempletondatasources.com for additional data provider information.

 

           
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FRANKLIN GENOMIC ADVANCEMENTS ETF

 

Your Fund’s Expenses

 

As a Fund shareholder, you can incur two types of costs: (1) transaction costs, including brokerage commissions on purchases and sales of Fund shares; and (2) ongoing Fund costs, including management fees and other Fund expenses. All funds have ongoing costs, sometimes referred to as operating expenses. The table below shows ongoing costs of investing in the Fund and can help you understand these costs and compare them with those of other funds. The table assumes a $1,000 investment held for the six months indicated.

Actual Fund Expenses

The table below provides information about actual account values and actual expenses in the columns under the heading “Actual.” In these columns the Fund’s actual return, which includes the effect of Fund expenses, is used to calculate the “Ending Account Value.” You can estimate the expenses you paid during the period by following these steps (of course, your account value and expenses will differ from those in this illustration): Divide your account value by $1,000 (if your account had an $8,600 value, then $8,600 ÷ $1,000 = 8.6). Then multiply the result by the number in the row under the headings “Actual” and “Expenses Paid During Period” (if Actual Expenses Paid During Period were $7.50, then 8.6 × $7.50 = $64.50). In this illustration, the actual expenses paid this period are $64.50.

Hypothetical Example for Comparison with Other Funds

Under the heading “Hypothetical” in the table, information is provided about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. This information may not be used to estimate the actual ending account balance or expenses you paid for the period, but it can help you compare ongoing costs of investing in the Fund with those of other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds.

Please note that expenses shown in the table are meant to highlight ongoing costs and do not reflect any transactional costs. Therefore, information under the heading “Hypothetical” is useful in comparing ongoing costs only, and will not help you compare total costs of owning different funds. In addition, if transactional costs were included, your total costs would have been higher.

 

      Actual
(actual return after expenses)
    Hypothetical
(5% annual return before expenses)
       
Beginning
Account
Value 4/1/22
    Ending
Account
Value 9/30/22
    Expenses
Paid During
Period
4/1/22–9/30/221
    Ending
Account
Value 9/30/22
    Expenses
Paid During
Period
4/1/22–9/30/221
    Net Annualized
Expense Ratio
 
  $1,000.00     $ 802.20     $ 2.26     $ 1,022.56     $ 2.54       0.50

1. Expenses are equal to the annualized expense ratio for the six-month period as indicated above—in the far right column—multiplied by the simple average account value over the period indicated, and then multiplied by 183/365 to reflect the one-half year period.

 

           
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Franklin High Yield Corporate ETF

Formerly, Franklin Liberty High Yield Corporate ETF

 

This semiannual report for Franklin High Yield Corporate ETF covers the period ended September 30, 2022.

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 six-month period, the Fund posted cumulative total returns of -10.43% based on market price and -10.27% 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 -10.59% cumulative total return for the same period.1You can find more of the Fund’s performance data in the Performance Summary beginning on page 28.

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 -9.22% total return for the six months ended September 30, 2022.1 High inflation amid a strong labor market led to significantly tighter monetary policy, reducing the value of most bonds. Geopolitical instability disrupted financial markets amid the ongoing war in Ukraine, adding to the uncertainty surrounding the course of the global economy. The yield curve continued to narrow, inverting in the second half of the period as investors became increasingly concerned about the economic outlook.

In an effort to control inflation, the U.S. Federal Reserve (Fed) continued to raise the federal funds target rate. The Fed raised the federal funds rate at each of its four meetings during the period to end at a range of 3.00%–3.25%. The Fed noted in its September 2022 meeting that inflation remained elevated amid robust job growth and low unemployment. In order to achieve its goal of 2% long-run inflation, the Fed stated it anticipates making additional increases to the federal funds target rate. Furthermore, the Fed indicated it would continue to reduce its U.S. Treasury (UST) and agency mortgage-backed security holdings.

UST bonds, as measured by the Bloomberg U.S. Treasury Index, posted a -7.96% total return for the six-month period.1 The 10- year UST yield (which moves inversely to price) grew amid high inflation and the Fed’s tightening monetary stance. Mortgage-backed securities (MBS), as measured by the Bloomberg U.S. MBS Index, posted a -9.14% total return for the period as mortgage rates rose to the highest level in over adecade.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. Corporate yield spreads, a measure of the difference in yields between corporate bonds and similarly-dated USTs, rose, reflecting investors’ increased risk-aversion preferences. In this environment, high-yield corporate bonds, as represented by the Bloomberg U.S. Corporate High Yield Bond Index, posted a -10.41% total return, while investment-grade corporate bonds, as represented by the Bloomberg U.S. Corporate Bond Index, posted a -11.95% total return.1

 

Portfolio Composition       
9/30/22       
      % of Total
Net Assets
 
Corporate Bonds & Notes      89.0%  
Senior Floating Rate Interests      4.2%  
Short-Term Investments & Other Net Assets      6.8%  

 

1. Source: Morningstar.

The index is unmanaged and includes reinvestment of any income or distributions. It does not reflect any fees, expenses or sales charges. One cannot invest directly in an index, and an index is not representative of the Fund’s portfolio.

See www.franklintempletondatasources.com for additional data provider information.

The dollar value, number of shares or principal amount, and names of all portfolio holdings are listed in the Fund’s Schedule of Investments (SOI). The SOI begins on page 112.

 

           
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FRANKLIN HIGH YIELD CORPORATE ETF

 

Top 10 Sectors/Industries       
9/30/22       
      % of Total
Net Assets
 
Energy      17.8%  
Media & Entertainment      12.5%  
Materials      11.0%  
Commercial & Professional Services      6.7%  
Diversified Financials      5.7%  
Utilities      5.6%  
Consumer Services      4.2%  
Automobiles & Components      3.5%  
Health Care Equipment & Services      3.3%  
Capital Goods      3.2%  

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 life loans. The Fund may also invest in defaulted debt securities. The Fund may invest in 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. Accordingly, the investment manager has discretion on a daily basis to manage the Fund’s portfolio in accordance with the Fund’s investment goals.

Top 10 Holdings       
9/30/22       

Company

Sector/Industry

   % of Total
Net Assets
 
Federal Home Loan Bank Discount Notes, 10/03/22      5.5%  
TransDigm Inc., 144A, 6.25%, 3/15/26
Capital Goods
     1.2%  
Vistra Operations Co. LLC, 144A, 5.50%, 9/01/26 Utilities      1.1%  
Harbour Energy PLC, 144A, 5.50%, 10/15/26
Energy
     1.1%  
InterGen NV, 144A, 7.00%, 6/30/23
Utilities
     1.1%  
CSC Holdings LLC, 144A, 7.50%, 4/01/28
Media & Entertainment
     1.1%  
United Rentals North America Inc., 5.50%, 5/15/27
Commercial Services
     1.1%  
American Airlines Inc/AAdvantage Loyalty IP Ltd., 144A, 5.50%, 4/20/26
Airlines
     1.1%  
Banijay Entertainment SASU, 144A, 5.375%, 3/01/25 Media & Entertainment      1.0%  
DaVita Inc., 144A, 4.625%, 6/01/30
Health Care Equipment & Services
     1.0%  

Manager’s Discussion

Since the beginning of 2022, escalating geopolitical risks around the Russia-Ukraine war, combined with fears that the Fed’s aggressive interest-rate stance could push the economy into a recession, have resulted in persistent volatility. As spreads widened and U.S. Treasury yields increased, the high yield (HY) asset class experienced negative returns. Despite the fundamental challenges, it is worth noting that HY credit fundamentals are entering this turbulent period from a position of strength, with healthy net leverage and robust interest coverage as readily accessible capital markets in the past several years enabled most issuers to build up liquidity reserves. With the Fed actively seeking to slow the economy to combat inflation, we continue to be cautious of issuers or industries that are facing secular declines or heightened competitive pressures, as well as companies with minimal cash flow generation relative to their debt obligations.

Based on benchmark index data, HY spreads generally widened during the six-month period under review. Most segments of the HY market posted negative absolute returns for the performance period under review. CCC rated bonds returned -14.18%, compared to returns of -11.19% and -9.40% for B and BB rated segments, respectively. From an industry standpoint, energy stood out as a key performer, followed by metals/minerals.

 

           
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FRANKLIN HIGH YIELD CORPORATE ETF

 

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

The Fund’s industry allocation contributed to relative performance for the period, led by overweight positions in the energy and utility industries and underweight positions in the health care segment. Conversely, underweighted positions in the food and beverage, aerospace and defense, and restaurant industries hindered 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.

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 September 30, 2022, 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, country, 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.

 

           
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FRANKLIN HIGH YIELD CORPORATE ETF

 

Performance Summary as of September 30, 2022

Total return reflects reinvestment of the Fund’s dividends and capital gain distributions, if any, and any unrealized gains or losses. Total returns do not include brokerage commissions that may be payable on secondary market transactions. The performance table does not reflect any taxes that a shareholder would pay on Fund dividends, capital gain distributions, if any, or any realized gains on the sale of Fund shares.

Net asset value or “NAV” is the value of one share of a fund as calculated in accordance with the standard formula for valuing mutual fund shares. Market Price returns typically are based upon the official closing price of the ETF’s shares. Since shares of the Fund did not trade in the secondary market until after the Fund’s inception, for the period from inception to the first day of secondary trading (6/1/18), the NAV of the Fund is used as a proxy for the Market Price to calculate market returns. Market and NAV returns assume that dividends and capital gain distributions have been reinvested at Market Price and NAV.

Your dividend income will vary depending on dividends or interest paid by securities in the Fund’s portfolio, adjusted for operating expenses. Capital gain distributions are net profits realized from the sale of portfolio securities.

Performance as of 9/30/221

 

     Cumulative Total Return2      Average Annual Total Return2  
      Based on
NAV3
     Based on
market price4
     Based on
NAV3
     Based on
market price4
 

6-Month

     -10.27%        -10.43%        -10.27%        -10.43%  

1-Year

     -13.92%        -14.27%        -13.92%        -14.27%  

3-Year

     -1.00%        -1.83%        -0.33%        -0.61%  

Since Inception (5/30/18)

     +10.70%        +10.23%        +2.37%        +2.27%  

 

Distribution Rate5   30-Day
Standardized Yield6
 

8.03%

         7.54%  

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.

 

See page 29 for Performance Summary footnotes.

 

           
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FRANKLIN HIGH YIELD CORPORATE ETF

PERFORMANCE SUMMARY

 

Distributions (4/1/22–9/30/22)

Net Investment
Income

$0.729443

Total Annual Operating Expenses7

 

  0.40%

All investments involve risks, including possible loss of principal. Bond prices generally move in the opposite direction of interest rates. Thus, as the prices of bonds in the Fund adjust to a rise in interest rates, the Fund’s share price may decline. Distributions to shareholders may decline when prevailing interest rates fall or when the Fund experiences defaults on debt securities it holds. The high-yield corporate debt securities and instruments in which the Fund invests tend to be rated below investment grade. Investing in higher-yielding, lower-rated corporate debt securities and instruments involves greater risk of default, which could result in loss of principal – a risk that may be heightened in a slowing economy. Changes in the financial strength of a bond issuer or in a bond’s credit rating may affect its value. The markets for particular securities or types of securities are or may become relatively illiquid. Reduced liquidity will have an adverse impact on the security’s value and on the Fund’s ability to sell such securities when necessary to meet the Fund’s liquidity needs or in response to a specific market event. Investing in derivative securities and the use of foreign currency techniques involve special risks as such may not achieve the anticipated benefits and/or may result in losses to the Fund. The manager’s portfolio selection strategy is not solely based on ESG considerations, and therefore the issuers in which the Fund invests may not be considered ESG-focused companies. Events such as the spread of deadly diseases, disasters, and financial, political or social disruptions, may heighten risks and adversely affect performance. The Fund’s prospectus also includes a description of the main investment risks.

Russia’s military invasion of Ukraine in February 2022, the resulting responses by the United States and other countries, and the potential for wider conflict could increase volatility and uncertainty in the financial markets and adversely affect regional and global economies. The United States and other countries have imposed broad-ranging economic sanctions on Russia and certain Russian individuals, banking entities and corporations as a response to its invasionof Ukraine. The United States and other countries have also imposed economic sanctions on Belarus and may impose sanctions on other countries that support Russia’s military invasion. These sanctions, as well as any other economic consequences related to the invasion, such as additional sanctions, boycotts or changes in consumer or purchaser preferences or cyberattacks on governments, companies or individuals, may further decrease the value and liquidity of certain Russian securities and securities of issuers in other countries that are subject to economic sanctions related to the invasion.

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

1. The total annual operating expenses are sourced from the Fund’s prospectus available at the time of publication. Actual expenses may be higher and may impact portfolio returns.

2. Total return calculations represent the cumulative and average annual changes in value of an investment over the periods indicated. Return for less than one year, if any, has not been annualized.

3. Assumes reinvestment of distributions based on net asset value.

4. Assumes reinvestment of distributions based on market price.

5. Distribution rate is based on an annualization of the September dividend and the NAV per share on 9/30/22.

6. The Fund’s 30-day standardized yield is calculated over a trailing 30-day period using the yield to maturity on bonds and/or the dividends accrued on stocks. It may not equal the Fund’s actual income distribution rate, which reflects the Fund’s past dividends paid to shareholders.

7. Figures are as stated in the Fund’s current prospectus and may differ from the expense ratios disclosed in the Your Fund’s Expenses and Financial Highlights sections in this report.

See www.franklintempletondatasources.com for additional data provider information.

 

           
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             29


FRANKLIN HIGH YIELD CORPORATE ETF

 

Your Fund’s Expenses

 

As a Fund shareholder, you can incur two types of costs: (1) transaction costs, including brokerage commissions on purchases and sales of Fund shares; and (2) ongoing Fund costs, including management fees and other Fund expenses. All funds have ongoing costs, sometimes referred to as operating expenses. The table below shows ongoing costs of investing in the Fund and can help you understand these costs and compare them with those of other funds. The table assumes a $1,000 investment held for the six months indicated.

Actual Fund Expenses

The table below provides information about actual account values and actual expenses in the columns under the heading “Actual.” In these columns the Fund’s actual return, which includes the effect of Fund expenses, is used to calculate the “Ending Account Value.” You can estimate the expenses you paid during the period by following these steps (of course, your account value and expenses will differ from those in this illustration): Divide your account value by $1,000 (if your account had an $8,600 value, then $8,600 $1,000 = 8.6). Then multiply the result by the number in the row under the headings “Actual” and “Expenses Paid During Period” (if Actual Expenses Paid During Period were $7.50, then 8.6 × $7.50 = $64.50). In this illustration, the actual expenses paid this period are $64.50.

Hypothetical Example for Comparison with Other Funds

Under the heading “Hypothetical” in the table, information is provided about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. This information may not be used to estimate the actual ending account balance or expenses you paid for the period, but it can help you compare ongoing costs of investing in the Fund with those of other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds.

Please note that expenses shown in the table are meant to highlight ongoing costs and do not reflect any transactional costs. Therefore, information under the heading “Hypothetical” is useful in comparing ongoing costs only, and will not help you compare total costs of owning different funds. In addition, if transactional costs were included, your total costs would have been higher.

 

     

Actual

(actual return after expenses)

    Hypothetical
(5% annual return before expenses)
       
Beginning
Account
Value 4/1/22
    Ending
Account
Value 9/30/22
    Expenses
Paid During
Period
4/1/22–9/30/221
    Ending
Account
Value 9/30/22
    Expenses
Paid During
Period
4/1/22–9/30/221
    Net Annualized
Expense Ratio
 
  $1,000.00     $ 897.30     $ 1.90     $ 1,023.06     $ 2.03       0.40

1. Expenses are equal to the annualized expense ratio for the six-month period as indicated above—in the far right column—multiplied by the simple average account value over the period indicated, and then multiplied by 183/365 to reflect the one-half year period.

 

           
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Franklin Intelligent Machines ETF

 

This semiannual report for Franklin Intelligent Machines ETF covers the period ended September 30, 2022.

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 are focused on, or that the investment manager believes will 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 six-month period, the Fund posted cumulative total returns of -26.88% based on market price and -26.95% 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 -20.42% 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

U.S. equities, as measured by the Standard & Poor’s 500 Index, posted a -20.20% total return for the six months ended September 30, 2022.1 High inflation, rising interest rates and geopolitical instability contributed to a sharp decline in equity prices, particularly as the period progressed. Although consumer spending continued to rise, deteriorating financial conditions negatively impacted consumer sentiment, which

improved slightly at the end of the period after falling in June 2022 to the lowest level in over 60 years.

Elevated inflation was a major concern for both consumers and investors, as inflation accelerated in June 2022 to the highest rate since 1981. 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, although much of that increase abated by period-end. The unemployment rate declined marginally from 3.6% in March 2022 to 3.5% in September 2022 as notable employment gains occurred in the leisure and hospitality and health care sectors. Wage growth remained strong throughout the period, adding to some investors’ inflation concerns.

U.S. gross domestic product contracted in the second quarter of 2022, with the economy technically entering a recession, amid lower investments in inventories and fixed assets. An inventory drawdown, declining residential and business investment and lower levels of government spending contributed to the economic slowdown. Rising interest rates translated to higher borrowing costs for individuals and businesses, which dampened economic activity. Mortgage rates reached the highest level since 2007, and new home construction slowed toward period-end.

In an effort to control inflation, the U.S. Federal Reserve (Fed) continued to raise the federal funds target rate. The Fed raised the federal funds rate at each of its four meetings during the period to end at a range of 3.00%–3.25%. The Fed noted in its September 2022 meeting that inflation remained elevated amid robust job growth and low unemployment. Furthermore, the Fed said it would continue to reduce its bond holdings, and Fed Chair Jerome Powell indicated that reducing inflation was likely to require a period of below-trend growth.

 

1. Source: Morningstar.

The index is unmanaged and includes reinvestment of any income or distributions. It does not reflect any fees, expenses or sales charges. One cannot invest directly in an index, and an index is not representative of the Fund’s portfolio.

The dollar value, number of shares or principal amount, and names of all portfolio holdings are listed in the Fund’s Schedule of Investments (SOI). The SOI begins on page 119.

 

           
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FRANKLIN INTELLIGENT MACHINES ETF

 

Porfolio Composition       
9/30/22       
      % of Total
Net Assets
 

Semiconductors & Semiconductor Equipment

     32.8%  

Software

     23.9%  

Health Care Equipment & Supplies

     10.5%  

Electronic Equipment, Instruments & Components

     8.8%  

Automobiles

     7.7%  

Computers & Peripherals

     5.0%  

Construction & Engineering

     3.1%  

Industrial Conglomerates

     2.2%  

Aerospace & Defense

     2.1%  

Other

     3.9%  

Other Net Assets

     0.0%  

 

Top 10 Holdings       
9/30/22       

Company

Sector/Industry

   % of Total
Net Assets
 

Tesla Inc.

Automobile Manufacturers

     7.7%  

Apple Inc.

Technology Hardware, Storage & Peripherals

     5.0%  

Cadence Design Systems Inc.

Application Software

     4.3%  

Synopsys Inc.

Application Software

     4.3%  

NVIDIA Corp.

Semiconductors

     4.1%  

Intuitive Surgical Inc.

Health Care Equipment

     3.9%  

ASML Holding NV

Semiconductor Equipment

     3.9%  

Enphase Energy Inc.

Semiconductor Equipment

     3.8%  

Descartes Systems Group Inc.

Application Software

     3.1%  

Keyence Corp.

Electronic Equipment & Instruments

     3.0%  

Investment Strategy

We use fundamental, bottom-up research analysis to identify companies positioned to capitalize on disruptive innovation in or are enabling the further development of the intelligent machines theme in the markets in which they operate. We 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 search for investments across a large number of sectors, we expect to have significant investments in particular sectors, including technology.

Manager’s Discussion

During the six-month period under review, the Fund was invested in 16 different industries, all of which produced negative absolute returns. The largest industry-level detractors were semiconductor and semiconductor equipment companies such as NVIDIA, ASML Holding, Taiwan Semiconductor Manufacturing, Entegris, Applied Materials and SiTime, all of which posted steep, double-digit percentage declines. Elsewhere in the information technology (IT) sector, all software industry holdings traded lower including key detractors Dassault Systèmes (3D product design, simulation and manufacturing software) and Atlassian (collaborative and quality-control software for software developers). The Fund’s smaller IT-related industry allocations also experienced across-the-board declines in every stock position, including standout detractors Keyence (electronics test and measurement equipment/software) and Zebra Technologies (mobile computing specialist focused on barcode printers and barcode scanners) in the electronic equipment, instruments and components industry; and Apple in the technology hardware, storage and peripherals industry.

Health care holdings collectively posted the largest overall decline among the Fund’s sector allocations as all related investments traded lower. Health care equipment and supplies companies were a notable area of weakness as Intuitive Surgical (robotic surgery systems), DexCom (next-generation glucose monitoring systems), IDEXX Laboratories (advanced diagnostic products and services for the veterinary and livestock markets) fared poorly along with six other, lesser industry detractors.

Elsewhere in the portfolio, electric vehicle (EV) manufacturer Tesla was a major detractor in the consumer discretionary sector, while Axon Enterprise, which designs and manufactures non-lethal weapons primarily for law enforcement, was the worst of 10 detractors in the industrials sector.

Turning to contributors, only four individual stocks added to absolute returns, and their combined impact was small given the magnitude of declines elsewhere in the portfolio. The most notable outlier to the upside was Enphase Energy,

 

           
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which has seen robust demand for its residential solar micro-inverters. To a much lesser extent, incremental contributions were seen in electronic design automation software specialist Cadence Design Systems; Valmont Industries, which manufactures irrigation equipment, windmill support structures, and utility poles; and Keysight Technologies, which makes electronics testing and measurement equipment.

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 September 30, 2022, 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, country, 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.

 

           
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FRANKLIN INTELLIGENT MACHINES ETF

 

Performance Summary as of September 30, 2022

Total return reflects reinvestment of the Fund’s dividends and capital gain distributions, if any, and any unrealized gains or losses. Total returns do not include brokerage commissions that may be payable on secondary market transactions. The performance table does not reflect any taxes that a shareholder would pay on Fund dividends, capital gain distributions, if any, or any realized gains on the sale of Fund shares.

Net asset value or “NAV” is the value of one share of a fund as calculated in accordance with the standard formula for valuing mutual fund shares. Market Price returns typically are based upon the official closing price of the ETF’s shares. Since shares of the Fund did not trade in the secondary market until after the Fund’s inception, for the period from inception to the first day of secondary trading (2/27/20), the NAV of the Fund is used as a proxy for the Market Price to calculate market returns. Market and NAV returns assume that dividends and capital gain distributions have been reinvested at Market Price and NAV.

Your dividend income will vary depending on dividends or interest paid by securities in the Fund’s portfolio, adjusted for operating expenses. Capital gain distributions are net profits realized from the sale of portfolio securities.

Performance as of 9/30/221

 

     Cumulative Total Return2      Average Annual Total Return2  
      Based on
NAV3
     Based on
market price4
     Based on
NAV3
     Based on
market price4
 

6-Month

     -26.95%        -26.88%        -26.95%        -26.88%  

1-Year

     -30.09%        -30.32%        -30.09%        -30.32%  

Since Inception (2/25/20)

     +35.53%        +35.17%        +12.42%        +12.30%  

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.

 

 

See page 35 for Performance Summary footnotes.

 

           
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PERFORMANCE SUMMARY

 

Total Annual Operating Expenses5

 

  0.50%

All investments involve risks, including possible loss of principal. Stock prices fluctuate, sometimes rapidly and dramatically, due to factors affecting individual companies, particular industries or sectors, or general market conditions. The Fund’s investment strategies incorporate the identification of thematic investment opportunities and its performance may be negatively impacted if the investment manager does not correctly identify such opportunities or if the theme develops in an unexpected manner. The Fund has significant exposure to the technology sector. Companies operating within the technology sector may be affected by worldwide technological developments, the success of their products and services (which may be outdated quickly), anticipated products or services that are delayed or cancelled, and investor perception of the company and/or its products or services. In addition, companies operating within the technology sector may develop and/or utilize artificial intelligence. Artificial intelligence technology could face increasing regulatory scrutiny in the future, which may limit the development of this technology and impede the growth of companies that develop and/or utilize this technology. Special risks are associated with foreign investing, including currency fluctuations, economic instability and political developments. As a non-diversified fund, the Fund may invest in a relatively small number of issuers which may negatively impact the Fund’s performance and result in greater fluctuation in the value of the Fund’s shares. The manager’s portfolio selection strategy is not solely based on ESG considerations, and therefore the issuers in which the Fund invests may not be considered ESG-focused companies. Integrating ESG considerations into the investment process is not a guarantee that better performance will be achieved. Events such as the spread of deadly diseases, disasters, and financial, political or social disruptions, may heighten risks and adversely affect performance. The Fund’s prospectus also includes a description of the main investment risks.

Russia’s military invasion of Ukraine in February 2022, the resulting responses by the United States and other countries, and the potential for wider conflict could increase volatility and uncertainty in the financial markets and adversely affect regional and global economies. The United States and other countries have imposed broad-ranging economic sanctions on Russia and certain Russian individuals, banking entities and corporations as a response to its invasion of Ukraine. The United States and other countries have also imposed economic sanctions on Belarus and may impose sanctions on other countries that support Russia’s military invasion. These sanctions, as well as any other economic consequences related to the invasion, such as additional sanctions, boycotts or changes in consumer or purchaser preferences or cyberattacks on governments, companies or individuals, may further decrease the value and liquidity of certain Russian securities and securities of issuers in other countries that are subject to economic sanctions related to the invasion.

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

1. The total annual operating expenses are sourced from the Fund’s prospectus available at the time of publication. Actual expenses may be higher and may impact portfolio returns.

2. Total return calculations represent the cumulative and average annual changes in value of an investment over the periods indicated. Return for less than one year, if any, has not been annualized.

3. Assumes reinvestment of distributions based on net asset value.

4. Assumes reinvestment of distributions based on market price.

5. Figures are as stated in the Fund’s current prospectus and may differ from the expense ratios disclosed in the Your Fund’s Expenses and Financial Highlights sections in this report.

See www.franklintempletondatasources.com for additional data provider information.

 

           
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FRANKLIN INTELLIGENT MACHINES ETF

 

Your Fund’s Expenses

 

As a Fund shareholder, you can incur two types of costs: (1) transaction costs, including brokerage commissions on purchases and sales of Fund shares; and (2) ongoing Fund costs, including management fees and other Fund expenses. All funds have ongoing costs, sometimes referred to as operating expenses. The table below shows ongoing costs of investing in the Fund and can help you understand these costs and compare them with those of other funds. The table assumes a $1,000 investment held for the six months indicated.

Actual Fund Expenses

The table below provides information about actual account values and actual expenses in the columns under the heading “Actual.” In these columns the Fund’s actual return, which includes the effect of Fund expenses, is used to calculate the “Ending Account Value.” You can estimate the expenses you paid during the period by following these steps (of course, your account value and expenses will differ from those in this illustration): Divide your account value by $1,000 (if your account had an $8,600 value, then $8,600 ÷ $1,000 = 8.6). Then multiply the result by the number in the row under the headings “Actual” and “Expenses Paid During Period” (if Actual Expenses Paid During Period were $7.50, then 8.6 × $7.50 = $64.50). In this illustration, the actual expenses paid this period are $64.50.

Hypothetical Example for Comparison with Other Funds

Under the heading “Hypothetical” in the table, information is provided about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. This information may not be used to estimate the actual ending account balance or expenses you paid for the period, but it can help you compare ongoing costs of investing in the Fund with those of other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds.

Please note that expenses shown in the table are meant to highlight ongoing costs and do not reflect any transactional costs. Therefore, information under the heading “Hypothetical” is useful in comparing ongoing costs only, and will not help you compare total costs of owning different funds. In addition, if transactional costs were included, your total costs would have been higher.

 

     

Actual

(actual return after expenses)

    Hypothetical
(5% annual return before expenses)
       
Beginning
Account
Value 4/1/22
    Ending
Account
Value 9/30/22
   

Expenses

Paid During
Period

4/1/22–9/30/221

    Ending
Account
Value 9/30/22
   

Expenses

Paid During
Period

4/1/22–9/30/221

    Net Annualized
Expense Ratio
 
  $1,000.00     $ 730.50     $ 2.17     $ 1,022.56     $ 2.54       0.50

1. Expenses are equal to the annualized expense ratio for the six-month period as indicated above—in the far right column—multiplied by the simple average account value over the period indicated, and then multiplied by 183/365 to reflect the one-half year period.

 

           
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Franklin International Aggregate Bond ETF

Formerly, Franklin Liberty International Aggregate Bond ETF

 

This semiannual report for Franklin International Aggregate Bond ETF covers the period ended September 30, 2022.

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       
9/30/22       
      % of Total
Net Assets
 

Europe

     41.0%  

Asia

     27.0%  

North America

     7.9%  

Supranationals

     2.3%  

Australia & New Zealand

     2.2%  

Middle East & Africa

     0.9%  

Latin America & Caribbean

     0.1%  

Short-Term Investments & Other Net Assets

     18.6%  

Performance Overview

During the six-month period, the Fund posted cumulative total returns of -3.99% based on market price and -3.71% 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 -6.13% cumulative total return. 1You can find more of the Fund’s performance data in the Performance Summary beginning on page 40.

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

Global aggregate bond markets posted significantly negative returns over the six-month review period.

After rising steadily in the first quarter of 2022, U.S. inflation maintained its upward trend over the second quarter. Concerns over rising price levels prompted the U.S. Federal Reserve (Fed) to raise its base rate by 50 basis points (bps) in early May, stoking expectations of aggressive rate tightening to come. With U.S. inflation showing no signs of slowing, reaching 8.6% (year-on-year) in May due to the rapidly increasing cost of housing, energy and food, the central bank then raised rates again in June, this time by an unexpected 75 bps, the largest increase since 1994. Overall, U.S. economic data released in the second quarter was lackluster; U.S. gross domestic product (GDP) for the first quarter of 2022 was revised down slightly. Consumer spending waned and sentiment fell significantly. Industrial production and surveys of business sentiment also finished the second quarter lower.

In July, a further acceleration in U.S. inflation persuaded the Fed to raise rates by a further 75 bps. The combination of rising prices and higher interest rates affected the broader U.S. economy; consumer sentiment remained depressed and industrial production for June was down. Business sentiment also turned negative, while the housing market continued to cool. On the contrary, the U.S. job market showed signs of strength in June. In August, investors remained concerned that, despite the slowdown in economic growth, the Fed would continue hiking interest rates. A subsequent hawkish Jackson Hole address from Fed Chair Jerome Powell confirmed this position. Surprisingly, inflation fell slightly in July, helping to precipitate an improvement in U.S. consumer sentiment reading. Labor market figures were also notably robust. However, weak data from China, and discouraging news on energy prices and supplies, with the consequent impact on Europe, accompanied a deterioration in investor sentiment. In September, with core inflation rising by 6.3% (year-on-year) in August, up from 5.9% in July, the Fed raised the federal funds rate by another 75 bps. It also updated its 2023 economic projections, revising growth down to 1.2%, and unemployment and core inflation up to 4.4% and 3.1%, respectively.

 

1. Source: Morningstar.

The index is unmanaged and includes reinvestment of any income or distributions. It does not reflect any fees, expenses or sales charges. One cannot invest directly in an index, and an index is not representative of the Fund’s portfolio.

See www.franklintempletondatasources.com for additional data provider information.

The dollar value, number of shares or principal amount, and names of all portfolio holdings are listed in the Fund’s Schedule of Investments (SOI).

The SOI begins on page 122 .

 

           
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FRANKLIN INTERNATIONAL AGGREGATE BOND ETF

 

Against this backdrop, benchmark 10-year U.S. Treasury yields increased in April, although they fell a little in May. Having peaked close to 3.5% in mid-June, in the wake of the inflation data and subsequent Fed hike, they ended the second quarter below 3% as concerns grew about a potential recession, and then declined in July by more than 35 bps, despite the hike in the U.S. federal funds rate. Following hawkish comments from Fed policymakers, yields then rebounded sharply in August and September, with two-and five-year U.S. Treasury yields moving above 4% by the end of the period under review.

In Europe, data released in April underlined that while the European Central Bank (ECB) would ultimately be forced to raise rates, it would have to balance slowing growth against rising prices. Indeed, the energy crisis saw eurozone inflation reach 8.1% year-on-year in May. This increased pressure on the ECB to increase the cost of borrowing, although the central bank revised its forecast for 2022 eurozone growth down from 4.2% to 2.9%. The ECB bolstered its increasingly hawkish positioning in June by committing to raise interest rates by 25 bps at its July meeting, followed by a gradual and sustained increase in rates as appropriate. The move was prompted by surging energy prices, which saw eurozone inflation reach 8.6% (year-on-year) in June.

In fact, with inflation rising to 8.9% (year-on-year) in July, the ECB raised rates by 50 bps during the month, while also unveiling its new tools designed to ensure the effective transmission of monetary policy to all member states via sovereign debt purchases. Purchasing managers’ index data showed that the eurozone economy contracted in July, with both output and new orders falling for the first time since early 2021. Meanwhile, the ECB Survey of Professional Forecasters, released in July, raised inflation projections to 3.6% for 2023, but revised eurozone growth down to 1.5%. Eurozone inflation then reached 9.1% (year-on-year) in August. Although economic growth continued to slow in the region, the inflation data strengthened the case for the ECB to raise rates further at its next meeting. Indeed, in September, an increasingly hawkish central bank hiked its base rate by 75 bps. At the same time, economic growth for 2023 was also revised down to 0.9%, emphasizing the difficult path the ECB must tread on monetary policy.

In European fixed income markets, given the hawkish rhetoric from the ECB, benchmark 10-year German Bund yields were up sharply over the second quarter of 2022, reflecting the increased possibility of policy tightening. Nevertheless, in July, benchmark 10-year German Bund yields fell sharply, losing more than 50 bps over the month. However, benchmark European government bond yields rose significantly in August and September, with German five-and 10-year Bund yields moving above 2% by the end of the third quarter.

Portfolio Composition       
9/30/22       
      % of Total
Net Assets
 

Foreign Government and Agency Securities

     76.6%  

Corporate Bonds & Notes

     4.8%  

Short-Term Investments & Other Net Assets

     18.6%  

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 of 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

 

           
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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. These derivative instruments may be used for hedging purposes. Derivatives that provide exposure to bonds may be used to satisfy the Fund’s 80% policy.

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 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, an underweight allocation to China’s market, which bettered the benchmark, weighed on relative results.

The Fund’s sector allocation contributed to relative performance, while security selection had a small negative impact on relative returns. In government bonds, an overweight exposure to German Bunds and positioning in Italian sovereign debt bolstered relative results. In the corporate space, an underweight exposure to investment-grade financial bonds added relative value, although this was countered to some degree by the harmful bearing of selection in this area. Selection in investment-grade industrial issues also aided relative results. In contrast, selection in hard-currency emerging market debt hurt relative performance.

The Fund’s currency positioning also added to relative results, largely owing to underweight allocations to the euro and British pound, both of which depreciated against the U.S. dollar. Nevertheless, an overweight exposure to the Canadian dollar, also down versus its U.S. counterpart, subtracted relative value.

In terms of derivative 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 1286 bps to the Fund’s performance, as the U.S. dollar rose strongly 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 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 September 30, 2022, 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, country, 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.

 

           
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FRANKLIN INTERNATIONAL AGGREGATE BOND ETF

 

Performance Summary as of September 30, 2022

Total return reflects reinvestment of the Fund’s dividends and capital gain distributions, if any, and any unrealized gains or losses. Total returns do not include brokerage commissions that may be payable on secondary market transactions. The performance table does not reflect any taxes that a shareholder would pay on Fund dividends, capital gain distributions, if any, or any realized gains on the sale of Fund shares.

Net asset value or “NAV” is the value of one share of a fund as calculated in accordance with the standard formula for valuing mutual fund shares. Market Price returns typically are based upon the official closing price of the ETF’s shares. Since shares of the Fund did not trade in the secondary market until after the Fund’s inception, for the period from inception to the first day of secondary trading (6/1/18), the NAV of the Fund is used as a proxy for the Market Price to calculate market returns. Market and NAV returns assume that dividends and capital gain distributions have been reinvested at Market Price and NAV.

Your dividend income will vary depending on dividends or interest paid by securities in the Fund’s portfolio, adjusted for operating expenses. Capital gain distributions are net profits realized from the sale of portfolio securities.

Performance as of 9/30/221

 

     Cumulative Total Return2      Average Annual Total Return2  
      Based on
NAV3
    

Based on

market price4

     Based on
NAV3
     Based on
market price4
 

6-Month

     -3.71%        -3.99%        -3.71%        -3.99%  

1-Year

     -7.38%        -7.38%        -7.38%        -7.38%  

3-Year

     -7.13%        -7.28%        -2.43%        -2.49%  

Since Inception (5/30/18)

     -2.46%        -2.44%        -0.57%        -0.57%  

 

Distribution Rate5   

30-Day Standardized Yield6

 

0.59%

          1.60%  

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.

 

 

See page 41 for Performance Summary footnotes.   

 

           
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FRANKLIN INTERNATIONAL AGGREGATE BOND ETF

PERFORMANCE SUMMARY

 

Distributions (4/1/22–9/30/22)

Net Investment
Income

$0.402361

Total Annual Operating Expenses7

 

  0.25%

All investments involve risks, including possible loss of principal. Bond prices generally move in the opposite direction of interest rates and a rise in interest rates may cause the Fund’s share price to decline. Changes in the financial strength of a bond issuer or in a bond’s credit rating may affect its value. The Fund’s investments in foreign securities involve certain risks including economic and political uncertainties. Investments in developing markets involve heightened risks related to the same factors, in addition to those associated with their relatively small size and lesser liquidity. Investing in derivative securities and the use of foreign currency techniques involve special risks including counterparty risk, and as such may not achieve the anticipated benefits and/or may result in losses to the Fund. Sovereign debt securities are subject to various risks in addition to those relating to debt securities and foreign securities generally, including, but not limited to, the risk that a governmental entity may be unwilling or unable to pay interest and repay principal on its sovereign debt, or otherwise meet its obligations. The manager’s portfolio selection strategy is not solely based on ESG considerations, and therefore the issuers in which the Fund invests may not be considered ESG-focused companies. Events such as the spread of deadly diseases, disasters, and financial, political or social disruptions, may heighten risks and adversely affect performance. The Fund’s prospectus also includes a description of the main investment risks.

Russia’s military invasion of Ukraine in February 2022, the resulting responses by the United States and other countries, and the potential for wider conflict could increase volatility and uncertainty in the financial markets and adversely affect regional and global economies. The United States and other countries have imposed broad-ranging economic sanctions on Russia and certain Russian individuals, banking entities and corporations as a response to its invasion of Ukraine. The United States and other countries have also imposed economic sanctions on Belarus and may impose sanctions on other countries that support Russia’s military invasion. These sanctions, as well as any other economic consequences related to the invasion, such as additional sanctions, boycotts or changes in consumer or purchaser preferences or cyberattacks on governments, companies or individuals, may further decrease the value and liquidity of certain Russian securities and securities of issuers in other countries that are subject to economic sanctions related to the invasion.

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

1. The total annual operating expenses are sourced from the Fund’s prospectus available at the time of publication. Actual expenses may be higher and may impact portfolio returns.

2. Total return calculations represent the cumulative and average annual changes in value of an investment over the periods indicated. Return for less than one year, if any, has not been annualized.

3. Assumes reinvestment of distributions based on net asset value.

4. Assumes reinvestment of distributions based on market price.

5. Distribution rate is based on an annualization of the September dividend and the NAV per share on 9/30/22.

6. The Fund’s 30-day standardized yield is calculated over a trailing 30-day period using the yield to maturity on bonds and/or the dividends accrued on stocks. It may not equal the Fund’s actual income distribution rate, which reflects the Fund’s past dividends paid to shareholders.

7. Figures are as stated in the Fund’s current prospectus and may differ from the expense ratios disclosed in the Your Fund’s Expenses and Financial Highlights sections in this report.

See www.franklintempletondatasources.com for additional data provider information.

 

           
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FRANKLIN INTERNATIONAL AGGREGATE BOND ETF

 

Your Fund’s Expenses

 

As a Fund shareholder, you can incur two types of costs: (1) transaction costs, including brokerage commissions on purchases and sales of Fund shares; and (2) ongoing Fund costs, including management fees and other Fund expenses. All funds have ongoing costs, sometimes referred to as operating expenses. The table below shows ongoing costs of investing in the Fund and can help you understand these costs and compare them with those of other funds. The table assumes a $1,000 investment held for the six months indicated.

Actual Fund Expenses

The table below provides information about actual account values and actual expenses in the columns under the heading “Actual.” In these columns the Fund’s actual return, which includes the effect of Fund expenses, is used to calculate the “Ending Account Value.” You can estimate the expenses you paid during the period by following these steps (of course, your account value and expenses will differ from those in this illustration): Divide your account value by $1,000 (if your account had an $8,600 value, then $8,600 ÷ $1,000 = 8.6). Then multiply the result by the number in the row under the headings “Actual” and “Expenses Paid During Period” (if Actual Expenses Paid During Period were $7.50, then 8.6 × $7.50 = $64.50). In this illustration, the actual expenses paid this period are $64.50.

Hypothetical Example for Comparison with Other Funds

Under the heading “Hypothetical” in the table, information is provided about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. This information may not be used to estimate the actual ending account balance or expenses you paid for the period, but it can help you compare ongoing costs of investing in the Fund with those of other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds.

Please note that expenses shown in the table are meant to highlight ongoing costs and do not reflect any transactional costs. Therefore, information under the heading “Hypothetical” is useful in comparing ongoing costs only, and will not help you compare total costs of owning different funds. In addition, if transactional costs were included, your total costs would have been higher.

 

     

Actual

(actual return after expenses)

    Hypothetical
(5% annual return before expenses)
       
Beginning
Account
Value 4/1/22
    Ending
Account
Value 9/30/22
    Expenses
Paid During
Period
4/1/22–9/30/221
    Ending
Account
Value 9/30/22
    Expenses
Paid During
Period
4/1/22–9/30/221
    Net Annualized
Expense Ratio
 
  $1,000.00     $ 962.90     $ 1.23     $ 1,023.82     $ 1.27       0.25

1. Expenses are equal to the annualized expense ratio for the six-month period as indicated above—in the far right column—multiplied by the simple average account value over the period indicated, and then multiplied by 183/365 to reflect the one-half year period.

 

           
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Franklin Investment Grade Corporate ETF

Formerly, Franklin Liberty Investment Grade Corporate ETF

 

This semiannual report for Franklin Investment Grade Corporate ETF covers the period ended September 30, 2022.

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 six-month period, the Fund posted cumulative total returns of -12.33% based on market price and 12.32% based on net asset value (NAV).1 In comparison, the Bloomberg U.S. Corporate Investment Grade Bond Index, which measures the performance of the investment grade, fixed-rate, taxable corporate bond market, posted a -11.95% 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 46.

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 -9.22% total return for the six months ended September 30, 2022.1 High inflation amid a strong labor market led to significantly tighter monetary policy, reducing the value of most bonds. Geopolitical instability disrupted financial markets amid the ongoing war in Ukraine, adding to the uncertainty surrounding the course of the global economy. The yield curve continued to narrow, inverting in the second half of the period as investors became increasingly concerned about the economic outlook.

In an effort to control inflation, the U.S. Federal Reserve (Fed) continued to raise the federal funds target rate. The

Fed raised the federal funds rate at each of its four meetings during the period to end at a range of 3.00%–3.25%. The Fed noted in its September 2022 meeting that inflation remained elevated amid robust job growth and low unemployment. In order to achieve its goal of 2% long-run inflation, the Fed stated it anticipates making additional increases to the federal funds target rate. Furthermore, the Fed indicated it would continue to reduce its U.S. Treasury (UST) and agency mortgage-backed security holdings.

UST bonds, as measured by the Bloomberg U.S. Treasury Index, posted a -7.96% total return for the six-month period.1 The 10-year UST yield (which moves inversely to price) grew amid high inflation and the Fed’s tightening monetary stance. Mortgage-backed securities (MBS), as measured by the Bloomberg U.S. MBS Index, posted a -9.14% total return for the period as mortgage rates rose to the highest level in over a decade.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. Corporate yield spreads, a measure of the difference in yields between corporate bonds and similarly-dated USTs, rose, reflecting investors’ increased risk-aversion preferences. In this environment, high-yield corporate bonds, as represented by the Bloomberg U.S. Corporate High Yield Bond Index, posted a -10.41% total return, while investment-grade corporate bonds, as represented by the Bloomberg U.S. Corporate Investment Grade Bond Index, posted a -11.95% total return.1

 

1. Source: Morningstar.

The index is unmanaged and includes reinvestment of any income or distributions. It does not reflect any fees, expenses or sales charges. One cannot invest directly in an index, and an index is not representative of the Fund’s portfolio.

See www.franklintempletondatasources.com for additional data provider information.

The dollar value, number of shares or principal amount, and names of all portfolio holdings are listed in the Fund’s Schedule of Investments (SOI).

The SOI begins on page 127.

 

           
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FRANKLIN INVESTMENT GRADE CORPORATE ETF

 

Top 10 Sectors/Industries       
9/30/22       
      % of Total
Net Assets
 

Banks

     23.7%  

Electric Utilities

     7.3%  

Diversified Financial Services

     4.1%  

Health Care Providers & Services

     3.7%  

Oil, Gas & Consumable Fuels

     3.3%  

Food

     3.2%  

Electric

     2.9%  

Household Products

     2.9%  

Capital Markets

     2.8%  

Pharmaceuticals

     2.3%  

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’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 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. 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.

Top 10 Holdings       
9/30/22       
Issue/Issuer    % of Total
Net Assets
 

Verizon Communications Inc., senior bond,
3.40%, 3/22/41

     1.7%  

Bank of America Corp., sub. bond, 4.183%, 11/25/27

     1.5%  

Delta Air Lines Inc./SkyMiles IP Ltd., first lien, 144A, 4.50%, 4.50%, 10/20/25

     1.4%  

Wells Fargo & Co., 4.808% to 7/25/27, FRN thereafter, 7/25/28

     1.4%  

Vistra Operations Co. LLC, senior secured note, first lien, 144A, 3.55%, 7/15/24

     1.3%  

BPCE SA, senior note, 144A, 5.70%, 10/22/23

     1.3%  

National Australia Bank Ltd., sub. note, 144A,
2.332%, 8/21/30

     1.2%  

Essex Portfolio LP, senior bond, 2.65%, 3/15/32

     1.2%  

T-Mobile USA Inc., 2.875%, 2/15/31

     1.2%  

The Procter & Gamble Co., senior bond,
3.00%, 3/25/30

     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 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.

Manager’s Discussion

Investment-grade corporate bond absolute performance was negative over the six months under review, because of the combination of much higher U.S. Treasury yields and wider corporate bond credit spreads.

The Fund performed slightly worse than its benchmark for the six months under review. The Fund’s overweight allocation to BBB-rated bonds and its underweight allocation to A-rated bonds detracted from performance during this risk off period in markets. Security selection also detracted from results, led by companies within the energy, communications and banking sectors.

Duration and yield curve positioning were strong contributors to relative performance. On average over the six months, we maintained a duration slightly lower than the benchmark, especially in bonds with shorter maturities given our view that the yield curve would invert due to tighter central bank policy.

 

           
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FRANKLIN INVESTMENT GRADE CORPORATE ETF

 

Overall industry allocation contributed to results. Our underweight allocation to bonds in the communication sector helped performance, as did our overweight in the electric utility sector. However, an underweight in technology and capital goods companies detracted from performance.

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 September 30, 2022, 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, country, 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.

 

           
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FRANKLIN INVESTMENT GRADE CORPORATE ETF

 

Performance Summary as of September 30, 2022

Total return reflects reinvestment of the Fund’s dividends and capital gain distributions, if any, and any unrealized gains or losses. Total returns do not include brokerage commissions that may be payable on secondary market transactions. The performance table does not reflect any taxes that a shareholder would pay on Fund dividends, capital gain distributions, if any, or any realized gains on the sale of Fund shares.

Net asset value or “NAV” is the value of one share of a fund as calculated in accordance with the standard formula for valuing mutual fund shares. Market Price returns typically are based upon the official closing price of the ETF’s shares. Since shares of the Fund did not trade in the secondary market until after the Fund’s inception, for the period from inception to the first day of secondary trading (10/5/16), the NAV of the Fund is used as a proxy for the Market Price to calculate market returns. Market and NAV returns assume that dividends and capital gain distributions have been reinvested at Market Price and NAV.

Your dividend income will vary depending on dividends or interest paid by securities in the Fund’s portfolio, adjusted for operating expenses. Capital gain distributions are net profits realized from the sale of portfolio securities.

Performance as of 9/30/221

 

     Cumulative Total Return2      Average Annual Total Return2  
      Based on
NAV3
     Based on
market price4
     Based on
NAV3
     Based on
market price4
 

6-Month

     -12.32%        -12.33%        -12.32%        -12.33%  

1-Year

     -19.01%        -18.81%        -19.01%        -18.81%  

5-Year

     -1.57%        -1.86%        -0.31%        -0.38%  

Since Inception (10/3/16)

     +0.28%        +0.22%        +0.05%        +0.04%  

 

Distribution Rate5    30-Day Standardized Yield6  

4.27%

              5.05%  

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.

 

See page 47 for Performance Summary footnotes.

 

           
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FRANKLIN INVESTMENT GRADE CORPORATE ETF

PERFORMANCE SUMMARY

 

Distributions (4/1/22–9/30/22)

 

Net Investment
Income

$0.409714

Total Annual Operating Expenses7

 

  0.35%

All investments involve risks, including possible loss of principal. Bond prices generally move in the opposite direction of interest rates. Thus, as the prices of bonds in the Fund adjust to a rise in interest rates, the Fund’s share price may decline. Distributions to shareholders may decline when prevailing interest rates fall or when the Fund experiences defaults on debt securities it holds. Changes in the financial strength of a bond issuer or in a bond’s credit rating may affect its value. The Fund’s investments in foreign securities involve certain risks including currency fluctuations, and economic and political uncertainties. Investments in developing markets involve heightened risks related to the same factors, in addition to those associated with their relatively small size and lesser liquidity. Investing in derivative securities and the use of foreign currency techniques involve special risks as such may not achieve the anticipated benefits and/or may result in losses to the Fund. The manager’s portfolio selection strategy is not solely based on ESG considerations, and therefore the issuers in which the Fund invests may not be considered ESG-focused companies. Integrating ESG considerations into the investment process is not a guarantee that better performance will be achieved. Events such as the spread of deadly diseases, disasters, and financial, political or social disruptions, may heighten risks and adversely affect performance. The Fund’s prospectus also includes a description of the main investment risks.

Russia’s military invasion of Ukraine in February 2022, the resulting responses by the United States and other countries, and the potential for wider conflict could increase volatility and uncertainty in the financial markets and adversely affect regional and global economies. The United States and other countries have imposed broad-ranging economic sanctions on Russia and certain Russian individuals, banking entities and corporations as a response to its invasion of Ukraine. The United States and other countries have also imposed economic sanctions on Belarus and may impose sanctions on other countries that support Russia’s military invasion. These sanctions, as well as any other economic consequences related to the invasion, such as additional sanctions, boycotts or changes in consumer or purchaser preferences or cyberattacks on governments, companies or individuals, may further decrease the value and liquidity of certain Russian securities and securities of issuers in other countries that are subject to economic sanctions related to the invasion.

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

1. The total annual operating expenses are sourced from the Fund’s prospectus available at the time of publication. Actual expenses may be higher and may impact portfolio returns.

2. Total return calculations represent the cumulative and average annual changes in value of an investment over the periods indicated. Return for less than one year, if any, has not been annualized.

3. Assumes reinvestment of distributions based on net asset value.

4. Assumes reinvestment of distributions based on market price.

5. Distribution rate is based on an annualization of the September dividend and the NAV per share on 9/30/22.

6. The Fund’s 30-day standardized yield is calculated over a trailing 30-day period using the yield to maturity on bonds and/or the dividends accrued on stocks. It may not equal the Fund’s actual income distribution rate, which reflects the Fund’s past dividends paid to shareholders.

7. Figures are as stated in the Fund’s current prospectus and may differ from the expense ratios disclosed in the Your Fund’s Expenses and Financial Highlights sections in this report.

See www.franklintempletondatasources.com for additional data provider information.

 

           
franklintempleton.com  

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FRANKLIN INVESTMENT GRADE CORPORATE ETF

 

Your Fund’s Expenses

 

As a Fund shareholder, you can incur two types of costs: (1) transaction costs, including brokerage commissions on purchases and sales of Fund shares; and (2) ongoing Fund costs, including management fees and other Fund expenses. All funds have ongoing costs, sometimes referred to as operating expenses. The table below shows ongoing costs of investing in the Fund and can help you understand these costs and compare them with those of other funds. The table assumes a $1,000 investment held for the six months indicated.

Actual Fund Expenses

The table below provides information about actual account values and actual expenses in the columns under the heading “Actual.” In these columns the Fund’s actual return, which includes the effect of Fund expenses, is used to calculate the “Ending Account Value.” You can estimate the expenses you paid during the period by following these steps (of course, your account value and expenses will differ from those in this illustration): Divide your account value by $1,000 (if your account had an $8,600 value, then $8,600 ÷ $1,000 = 8.6). Then multiply the result by the number in the row under the headings “Actual” and “Expenses Paid During Period” (if Actual Expenses Paid During Period were $7.50, then 8.6 × $7.50 = $64.50). In this illustration, the actual expenses paid this period are $64.50.

Hypothetical Example for Comparison with Other Funds

Under the heading “Hypothetical” in the table, information is provided about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. This information may not be used to estimate the actual ending account balance or expenses you paid for the period, but it can help you compare ongoing costs of investing in the Fund with those of other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds.

Please note that expenses shown in the table are meant to highlight ongoing costs and do not reflect any transactional costs. Therefore, information under the heading “Hypothetical” is useful in comparing ongoing costs only, and will not help you compare total costs of owning different funds. In addition, if transactional costs were included, your total costs would have been higher.

 

      Actual
(actual return after expenses)
    Hypothetical
(5% annual return before expenses)
       
Beginning
Account
Value 4/1/22
    Ending
Account
Value 9/30/22
   

Expenses

Paid During
Period

4/1/22–9/30/221

    Ending
Account
Value 9/30/22
   

Expenses

Paid During
Period

4/1/22–9/30/221

    Net Annualized
Expense Ratio
 
  $1,000.00     $ 876.80     $ 1.65     $ 1,023.31     $ 1.78       0.35

1. Expenses are equal to the annualized expense ratio for the six-month period as indicated above—in the far right column—multiplied by the simple average account value over the period indicated, and then multiplied by 183/365 to reflect the one-half year period.

 

           
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Franklin Municipal Green Bond ETF

Formerly, Franklin Liberty Federal Tax-Free Bond ETF

 

This semiannual report for Franklin Municipal Green Bond ETF covers the period ended September 30, 2022.

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 that pay interest 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 six-month period, the Fund posted cumulative total returns of -9.38% based on market price and -9.22% 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 -6.30% 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 51.

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 six months ending September 30, 2022, multi-decade high inflation persisted throughout much of the period as a strong U.S. job market and ample consumer savings pushed demand beyond the ability of businesses to increase supply. In response, the U.S. Federal Reserve (Fed) continued to raise short-term interest rates at a rapid pace, leading U.S. Treasury (UST) yields to rise sharply.

Recessionary concerns grew as the market lowered its confidence in the Fed’s ability to engineer a soft landing that would bring inflation down without causing a severe economic contraction.

Following one of the worst starts to a new year in 2022, the municipal bond (muni) market continued to perform poorly. High levels of fixed income market volatility, a general risk-off shift in sentiment, and poor performance pushed year-to-date outflows from muni retail vehicles ever higher, leading market technical conditions to further deteriorate. So far this year, net issuance has remained light, lagging well behind historic norms. Fundamentals remained strong, however, with many issuers reporting surpluses for 2022 as federal government transfers bolstered revenues.

For the six-month period, U.S. fixed income sectors performed better relative to equities, as measured by the Standard & Poor’s 500 Index, which posted a -20.20% total return for the period.2 Investment-grade munis, as measured by the Bloomberg Municipal Bond Index, posted a -6.30% total return, and USTs, as measured by the Bloomberg U.S. Treasury Index, posted a -7.96% total return.2 Investment-grade corporate bonds, as measured by the Bloomberg U.S. Corporate Bond Index, posted a -11.95% total return.2

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.

 

1. Dividends are generally subject to state and local taxes, if any. For investors subject to alternative minimum tax, a small portion of Fund dividends may be taxable. Distributions of capital gains are generally taxable. To avoid imposition of 28% backup withholding on all Fund distributions and redemption proceeds, U.S. investors must be properly certified on Form W-9 and non-U.S. investors on Form W-8BEN.

2. Source: Morningstar. Treasuries, if held to maturity, offer a fixed rate of return and a fixed principal value; their interest payments and principal are guaranteed.

The index is unmanaged and includes reinvestment of any income or distributions. It does not reflect any fees, expenses or sales charges. One cannot invest directly in an index, and an index is not representative of the Fund’s portfolio.

See www.franklintempletondatasources.com for additional data provider information.

The dollar value, number of shares or principal amount, and names of all portfolio holdings are listed in the Fund’s Schedule of Investments (SOI). The SOI begins on page 135.

 

           
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FRANKLIN MUNICIPAL GREEN BOND ETF

 

Portfolio Composition       
9/30/22       
      % of Total
Investments
 

Utilities

     18.21%  

Lease

     12.29%  

Special Tax

     12.12%  

Transportation

     10.10%  

Industrial Development Revenue and
Pollution Control

     9.49%  

Health Care

     9.37%  

Education

     8.39%  

Local

     7.29%  

Housing

     5.86%  

Other

     5.46%  

State

     0.70%  

Cash

     0.54%  

Refunded

     0.16%  

Manager’s Discussion

During the six-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.

 

 

The foregoing information reflects our analysis, opinions and portfolio holdings as of September 30, 2022, 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, country, 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.

 

           
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FRANKLIN MUNICIPAL GREEN BOND ETF

 

Performance Summary as of September 30, 2022

Total return reflects reinvestment of the Fund’s dividends and capital gain distributions, if any, and any unrealized gains or losses. Total returns do not include brokerage commissions that may be payable on secondary market transactions. The performance table does not reflect any taxes that a shareholder would pay on Fund dividends, capital gain distributions, if any, or any realized gains on the sale of Fund shares.

Net asset value or “NAV” is the value of one share of a fund as calculated in accordance with the standard formula for valuing mutual fund shares. Market Price returns typically are based upon the official closing price of the ETF’s shares. Since shares of the Fund did not trade in the secondary market until after the Fund’s inception, for the period from inception to the first day of secondary trading (9/5/17), the NAV of the Fund is used as a proxy for the Market Price to calculate market returns. Market and NAV returns assume that dividends and capital gain distributions have been reinvested at Market Price and NAV.

Your dividend income will vary depending on dividends or interest paid by securities in the Fund’s portfolio, adjusted for operating expenses. Capital gain distributions are net profits realized from the sale of portfolio securities.

Performance as of 9/30/221

 

     Cumulative Total Return2      Average Annual Total Return2  
      Based on
NAV3
     Based on
market price4
     Based on
NAV3
     Based on
market price4
 

6-Month

     -9.22%        -9.38%        -9.22%        -9.38%  

1-Year

     -15.37%        -15.55%        -15.37%        -15.55%  

5-Year

     +0.75%        +0.40%        +0.15%        +0.08%  

Since Inception (8/31/17)

     +0.23%        +0.09%        +0.05%        +0.02%  

 

     30-Day Standardized Yield6      Taxable Equivalent 30-Day
Standardized Yield7
 
Distribution Rate5    (with fee waiver)      (without fee waiver)      (with fee waiver)      (without fee waiver)  

3.22%

     3.56%        3.18%        6.01%        5.37%  

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.

 

See page 52 for Performance Summary footnotes.

 

           
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FRANKLIN MUNICIPAL GREEN BOND ETF

PERFORMANCE SUMMARY

 

Distributions (4/1/22–9/30/22)

Net Investment
Income

$0.315965

Total Annual Operating Expenses8

With Fee Waiver    Without Fee Waiver  

  0.30%

     0.66%  

All investments involve risks, including possible loss of principal. Because municipal bonds are sensitive to interest-rate movements, the Fund’s yield and share price will fluctuate with market conditions. Bond prices generally move in the opposite direction of interest rates. Thus, as prices of bonds in the Fund adjust to a rise in interest rates, the Fund’s share price may decline. The Fund may invest in lower rated bonds which include higher risk of default and loss of principal. Changes in the credit rating of a bond, or in the credit rating or financial strength of a bond’s issuer, insurer or guarantor, may affect the bond’s value. Some sectors might be more likely to issue green bonds, and events or factors impacting these sectors may have a greater effect on, and may more adversely affect, the Fund than they would a fund that does not invest in issuers with a common purpose. In addition, green bonds selected by the investment manager may not result in direct environmental benefits. Green bonds may not result in direct environmental benefits and the issuer may not use proceeds as intended or to appropriate new or additional projects. The managers’ environmental social and governance (ESG) investment strategies may limit the types and number of investment opportunities available and, as a result, may underperform strategies that are not subject to such criteria. ESG factors or criteria are subjective and qualitative, and the analysis by the manager may not always accurately assess ESG practices of a security or issuer, or reflect the opinions of other investors or advisors. The Fund may invest a significant part of its assets in municipal securities that finance similar types of projects, such as utilities, hospitals, higher education and transportation. A change that affects one project would likely affect all similar projects, thereby increasing market risk. To the extent such a change impacts sectors more likely to issue green bonds, it may have a greater adverse effect on the Fund because the Fund focuses investments in green bonds. Events such as the spread of deadly diseases, disasters, and financial, political or social disruptions, may heighten risks and adversely affect performance. The Fund’s prospectus also includes a description of the main investment risks.

Russia’s military invasion of Ukraine in February 2022, the resulting responses by the United States and other countries, and the potential for wider conflict could increase volatility and uncertainty in the financial markets and adversely affect regional and global economies. The United States and other countries have imposed broad-ranging economic sanctions on Russia and certain Russian individuals, banking entities and corporations as a response to its invasion of Ukraine. The United States and other countries have also imposed economic sanctions on Belarus and may impose sanctions on other countries that support Russia’s military invasion. These sanctions, as well as any other economic consequences related to the invasion, such as additional sanctions, boycotts or changes in consumer or purchaser preferences or cyberattacks on governments, companies or individuals, may further decrease the value and liquidity of certain Russian securities and securities of issuers in other countries that are subject to economic sanctions related to the invasion.

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

1. Gross expenses are the Fund’s total annual operating expenses and are sourced from the Fund’s prospectus available at the time of publication. Actual expenses may be higher and may impact portfolio returns. Net expenses reflect contractual fee waivers, expense caps and/or reimbursements, which cannot be terminated prior to 7/31/23 without Board consent.

2. Total return calculations represent the cumulative and average annual changes in value of an investment over the periods indicated. Return for less than one year, if any, has not been annualized.

3. Assumes reinvestment of distributions based on net asset value.

4. Assumes reinvestment of distributions based on market price.

5. Distribution rate is based on an annualization of the September dividend and the NAV per share on 9/30/22.

6. The Fund’s 30-day standardized yield is calculated over a trailing 30-day period using the yield to maturity on bonds and/or the dividends accrued on stocks. It may not equal the Fund’s actual income distribution rate, which reflects the Fund’s past dividends paid to shareholders.

7. Taxable equivalent yield assumes the 2022 maximum federal income tax rate of 37.00% plus 3.80% Medicare tax.

8. Figures are as stated in the Fund’s current prospectus and may differ from the expense ratios disclosed in the Your Fund’s Expenses and Financial Highlights sections in this report.

See www.franklintempletondatasources.com for additional data provider information.

 

           
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FRANKLIN MUNICIPAL GREEN BOND ETF

 

Your Fund’s Expenses

 

As a Fund shareholder, you can incur two types of costs: (1) transaction costs, including brokerage commissions on purchases and sales of Fund shares; and (2) ongoing Fund costs, including management fees and other Fund expenses. All funds have ongoing costs, sometimes referred to as operating expenses. The table below shows ongoing costs of investing in the Fund and can help you understand these costs and compare them with those of other funds. The table assumes a $1,000 investment held for the six months indicated.

Actual Fund Expenses

The table below provides information about actual account values and actual expenses in the columns under the heading “Actual.” In these columns the Fund’s actual return, which includes the effect of Fund expenses, is used to calculate the “Ending Account Value.” You can estimate the expenses you paid during the period by following these steps (of course, your account value and expenses will differ from those in this illustration): Divide your account value by $1,000 (if your account had an $8,600 value, then $8,600 ÷ $1,000 = 8.6). Then multiply the result by the number in the row under the headings “Actual” and “Expenses Paid During Period” (if Actual Expenses Paid During Period were $7.50, then 8.6 × $7.50 = $64.50). In this illustration, the actual expenses paid this period are $64.50.

Hypothetical Example for Comparison with Other Funds

Under the heading “Hypothetical” in the table, information is provided about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. This information may not be used to estimate the actual ending account balance or expenses you paid for the period, but it can help you compare ongoing costs of investing in the Fund with those of other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds.

Please note that expenses shown in the table are meant to highlight ongoing costs and do not reflect any transactional costs. Therefore, information under the heading “Hypothetical” is useful in comparing ongoing costs only, and will not help you compare total costs of owning different funds. In addition, if transactional costs were included, your total costs would have been higher.

 

     

Actual

(actual return after expenses)

   

Hypothetical

(5% annual return before expenses)

       
Beginning
Account
Value 4/1/22
    Ending
Account
Value 9/30/22
    Expenses
Paid During
Period
4/1/22–9/30/221
    Ending
Account
Value 9/30/22
   

Expenses
Paid During

Period
4/1/22–9/30/221

    Net Annualized
Expense Ratio
 
  $1,000.00     $ 907.80     $ 1.43     $ 1,023.56     $ 1.52       0.30

1. Expenses are equal to the annualized expense ratio for the six-month period as indicated above—in the far right column—multiplied by the simple average account value over the period indicated, and then multiplied by 183/365 to reflect the one-half year period.

 

           
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Franklin Senior Loan ETF

Formerly, Franklin Liberty Senior Loan ETF

 

This semiannual report for Franklin Senior Loan ETF covers the period ended September 30, 2022.

Your Fund’s Goal and Main Investments

The Fund seeks to provide a high level of current income. A secondary goal is preservation of capital. The Fund normally invests at least 80% of its net assets in senior loans and investments that provide exposure to senior loans. Senior loans include loans referred to as leveraged loans, bank loans and/or floating rate loans

Performance Overview

During the six-month period, the Fund posted cumulative total returns of -4.49% based on market price and -4.07% based on net asset value (NAV). In comparison, the Fund’s benchmark, the S&P/LSTA U.S. Leveraged Loan 100 Index, which reflects the performance of the largest facilities in the leveraged loan market, posted a -4.08% 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 57.

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 -9.22% total return for the six months ended September 30, 2022.2 High inflation amid a strong labor market led to significantly tighter monetary policy, reducing the value of most bonds. Geopolitical instability disrupted financial markets amid the ongoing war in Ukraine, adding to the uncertainty surrounding the course of the global economy. The yield curve continued to narrow, inverting in the second half of the period as investors became increasingly concerned about the economic outlook.

In an effort to control inflation, the U.S. Federal Reserve (Fed) continued to raise the federal funds target rate. The Fed raised the federal funds rate at each of its four meetings during the period to end at a range of 3.00%–3.25%. The Fed noted in its September 2022 meeting that inflation remained elevated amid robust job growth and low unemployment. In order to achieve its goal of 2% long-run inflation, the Fed stated it anticipates making additional increases to the federal funds target rate. Furthermore, the Fed indicated it would continue to reduce its U.S. Treasury (UST) and agency mortgage-backed security holdings.

UST bonds, as measured by the Bloomberg U.S. Treasury Index, posted a -7.96% total return for the six-month period.2 The 10-year UST yield (which moves inversely to price) grew amid high inflation and the Fed’s tightening monetary stance. Mortgage-backed securities (MBS), as measured by the Bloomberg U.S. MBS Index, posted a -9.14% total return for the period as mortgage rates rose to the highest level in over a decade.2

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. Corporate yield spreads, a measure of the difference in yields between corporate bonds and similarly-dated USTs, rose, reflecting investors’ increased risk-aversion preferences. In this environment, high-yield corporate bonds, as represented by the Bloomberg U.S. Corporate High Yield Bond Index, posted a -10.41% total return, while investment-grade corporate bonds, as represented by the Bloomberg U.S. Corporate Bond Index, posted a -11.95% total return.2

 

Portfolio Composition       
9/30/22       
      % of Total
Net Assets
 
Senior Floating Rate Interests      88.1%  
Corporate Bonds & Notes      3.0%  
Asset-Backed Securities      0.9%  
Short-Term Investments & Other Net Assets      8.0%  

 

1. Source: FactSet.

The index is unmanaged and includes reinvestment of any income or distributions. It does not reflect any fees, expenses or sales charges. One cannot invest directly in an index, and an index is not representative of the Fund’s portfolio.

2. Source: Morningstar.

See www.franklintempletondatasources.com for additional data provider information.

The dollar value, number of shares or principal amount, and names of all portfolio holdings are listed in the Fund’s Schedule of Investments (SOI).

The SOI begins on page 143.

 

           
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FRANKLIN SENIOR LOAN ETF

 

Top 10 Sectors/Industries       
9/30/22       
      % of Total
Net Assets
 
Software      14.7%  
Media      7.9%  
Commercial Services & Supplies      7.1%  
Health Care Providers & Services      6.6%  
Airlines      4.3%  
Chemicals      3.7%  
IT Services      3.5%  
Pharmaceuticals      3.4%  
Diversified Financial Services      2.5%  
Insurance      2.3%  

Investment Strategy

The Fund invests predominantly in income-producing senior floating interest-rate corporate loans made to or issued by U.S. companies, non-U.S. entities and U.S. subsidiaries of non-U.S. entities. Floating interest rates vary with and are periodically adjusted to a generally recognized base interest rate such as the London Interbank Offered Rate (LIBOR) or the Prime Rate. The Fund may invest in companies whose financial condition is troubled or uncertain and that may be involved in bankruptcy proceedings, reorganizations or financial restructurings.

Senior loans generally have credit ratings below investment grade and may be subject to restrictions on resale. Under normal market conditions, the Fund invests at least 75% of its net assets in senior loans that are rated B- or higher at the time of purchase by a nationally recognized statistical rating organization (NRSRO) or, if unrated, are determined to be of comparable quality by the Fund’s investment manager. Under normal market conditions, the Fund may invest up to 25% of its net assets in senior loans that are rated below B-by an NRSRO or, if unrated, are determined to be of comparable quality by the investment manager.

Manager’s Discussion

The loan market experienced meaningful price declines during the six-month period as the U.S. Federal Reserve (Fed) signaled its commitment to tackling inflation with aggressive tightening. While loan prices had previously benefited from expectations of a gradual rising rate environment, the new pace of rate hikes was expected to slow economic growth and potentially affect the debt servicing ability of certain issuers. Technical conditions, which had been supportive of loan prices in the prior period, turned negative as loan retail

vehicles experienced outflows. Additionally, primary market activity was subdued amid weaker demand. Sentiment concerning fundamental conditions also worsened, as credit rating downgrades outpaced upgrades.

During the period, the Fund performed in line with its primary benchmark, the Morningstar LSTA U.S. Leveraged Loan 100 Index. Amid greater dispersion in loan prices based on credit quality, the Fund’s underweight in upper tier loans (BB-rated) detracted from performance, but its underweight and selection in lower tier loans contributed to performance. Upper tier loans in the index returned -0.79%, middle tier loans (B-rated) returned -4.10%, and lower-tier loans returned -53.31%. As of September 30, 2022, the Fund had approximately 15% of its loan portfolio in the upper tier and 72% in the middle tier, compared to the index, which had 34% in the upper tier and 65% in the middle tier. The Fund maintained an overweight weighting in lower tier loans for most of the period but ended the period at 0.9% (compared to the benchmark weighting of 0.7%), as lower rated constituents fell out of the index. The Fund’s loan selection among lower rated loans positively contributed to relative performance as it did not have exposure to larger benchmark names that experienced meaningful declines.

The top individual contributors to Fund performance included issuers that continued to see rebounds from pandemic-related declines, in addition to issuers that were perceived to be more insulated from a potential economic slowdown due to higher rates. American Airlines (a global airline operator) traded higher from discounted levels due to a continued recovery in travel volumes, which raised expectations that the company would be able to reduce debt. The top detractors from performance primarily included issuers that had traded lower due to operational challenges or the expectation that rising rates would negatively impact interest coverage. Goto Group (a provider of workplace communication software) was the top detractor after reporting continued revenue declines for a core segment and a weak outlook for the rest of the year. The second lien term loans of Asurion (a provider of wireless handset insurance services) also declined amid weaker demand for lower rated loans during the period.

 

           
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FRANKLIN SENIOR LOAN ETF

 

Top 10 Holdings       
9/30/22       

Company

Sector/Industry

   % of Total
Net Assets
 

Federal Home Loan Bank Discount Notes, 10/3/2022

     7.3%  

Verscend Holding Corp., FRN thereafter,
7.115%, 8/27/2025

IT Services

     1.6%  

Greeneden U.S. Holdings II LLC, FRN thereafter, 7.115%, 12/1/2027

Technology Hardware, Storage & Peripherals

     1.5%  

Navicure Inc., FRN thereafter, 7.115%, 10/22/2026

Software

     1.4%  

eResearchTechnology Inc., FRN thereafter,
7.615%, 2/4/2027

Pharmaceuticals

     1.4%  

Peraton Corp., FRN thereafter, 6.865%, 2/1/2028

Aerospace & Defense

     1.3%  

Gainwell Acquisition Corp., FRN thereafter,
7.674%, 10/1/2027

Health Care Providers & Services

     1.3%  

Hyland Software Inc., FRN thereafter,
6.615%, 7/1/2024

Software

     1.2%  

Deerfield Dakota Holding LLC, FRN thereafter, 6.797%, 4/9/2027

IT Services

     1.3%  

Polaris Newco LLC, FRN thereafter, 7.674%, 6/2/2028

Software

     1.2%  

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

Reema Agarwal, CFA

Co-Lead Portfolio Manager

Justin Ma, CFA

Co-Lead Portfolio Manager

Margaret Chiu, CFA

Portfolio Manger

 

 

The foregoing information reflects our analysis, opinions and portfolio holdings as of September 30, 2022, 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, country, 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.

 

           
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FRANKLIN SENIOR LOAN ETF

 

Performance Summary as of September 30, 2022

Total return reflects reinvestment of the Fund’s dividends and capital gain distributions, if any, and any unrealized gains or losses. Total returns do not include brokerage commissions that may be payable on secondary market transactions. The performance table does not reflect any taxes that a shareholder would pay on Fund dividends, capital gain distributions, if any, or any realized gains on the sale of Fund shares.

Net asset value or “NAV” is the value of one share of a fund as calculated in accordance with the standard formula for valuing mutual fund shares. Market Price returns typically are based upon the official closing price of the ETF’s shares. Since shares of the Fund did not trade in the secondary market until after the Fund’s inception, for the period from inception to the first day of secondary trading (6/1/18), the NAV of the Fund is used as a proxy for the Market Price to calculate market returns. Market and NAV returns assume that dividends and capital gain distributions have been reinvested at Market Price and NAV.

Your dividend income will vary depending on dividends or interest paid by securities in the Fund’s portfolio, adjusted for operating expenses. Capital gain distributions are net profits realized from the sale of portfolio securities.

Performance as of 9/30/221

 

     Cumulative Total Return2      Average Annual Total Return2  
      Based on
NAV3
    

Based on

market price4

     Based on
NAV3
     Based on
market price4
 

6-Month

     -4.07%        -4.49%        -4.07%        -4.49%  

1-Year

     -3.66%        -4.39%        -3.66%        -4.39%  

3-Year

     +3.25%        +2.25%        +1.07%        +0.75%  

Since Inception (5/30/18)

     +8.57%        +7.98%        +1.91%        +1.79%  

 

Distribution Rate5    30-Day Standardized Yield6  

6.37%

     5.55%  

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.

 

See page 58 for Performance Summary footnotes.

 

           
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FRANKLIN SENIOR LOAN ETF

PERFORMANCE SUMMARY

 

Distributions (4/1/22–9/30/22)

Net Investment
Income

$0.576117

Total Annual Operating Expenses7

 

  0.45%

All investments involve risks, including possible loss of principal. Investors should be aware that the Fund’s share price and yield will fluctuate with market conditions. The senior loans and debt securities in which the Fund invests tend to be rated below investment grade. Investing in higher-yielding, lower-rated, senior loans and debt securities involves greater risk of default, which could result in loss of principal-a risk that may be heightened in a slowing economy. Interest earned on senior loans varies with changes in prevailing interest rates. Therefore, while senior loans offer higher interest income when interest rates rise, they will also generate less income when interest rates decline. Changes in the financial strength of a bond issuer or in a bond’s credit rating may affect its value. The markets for particular securities or types of securities are or may become relatively illiquid. Reduced liquidity will have an adverse impact on the security’s value and on the Fund’s ability to sell such securities when necessary to meet the Fund’s liquidity needs or in response to a specific market event. The manager’s portfolio selection strategy is not solely based on ESG considerations, and therefore the issuers in which the Fund invests may not be considered ESG-focused companies. Integrating ESG considerations into the investment process is not a guarantee that better performance will be achieved. Events such as the spread of deadly diseases, disasters, and financial, political or social disruptions, may heighten risks and adversely affect performance. The Fund’s prospectus also includes a description of the main investment risks.

Russia’s military invasion of Ukraine in February 2022, the resulting responses by the United States and other countries, and the potential for wider conflict could increase volatility and uncertainty in the financial markets and adversely affect regional and global economies. The United States and other countries have imposed broad-ranging economic sanctions on Russia and certain Russian individuals, banking entities and corporations as a response to its invasion of Ukraine. The United States and other countries have also imposed economic sanctions on Belarus and may impose sanctions on other countries that support Russia’s military invasion. These sanctions, as well as any other economic consequences related to the invasion, such as additional sanctions, boycotts or changes in consumer or purchaser preferences or cyberattacks on governments, companies or individuals, may further decrease the value and liquidity of certain Russian securities and securities of issuers in other countries that are subject to economic sanctions related to the invasion.

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

1. The total annual operating expenses are sourced from the Fund’s prospectus available at the time of publication. Actual expenses may be higher and may impact portfolio returns.

2. Total return calculations represent the cumulative and average annual changes in value of an investment over the periods indicated. Return for less than one year, if any, has not been annualized.

3. Assumes reinvestment of distributions based on net asset value.

4. Assumes reinvestment of distributions based on market price.

5. Distribution rate is based on an annualization of the September dividend and the NAV per share on 9/30/22.

6. The Fund’s 30-day standardized yield is calculated over a trailing 30-day period using the yield to maturity on bonds and/or the dividends accrued on stocks. It may not equal the Fund’s actual income distribution rate, which reflects the Fund’s past dividends paid to shareholders.

7. Figures are as stated in the Fund’s current prospectus and may differ from the expense ratios disclosed in the Your Fund’s Expenses and Financial Highlights sections in this report.

See www.franklintempletondatasources.com for additional data provider information.

 

           
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Your Fund’s Expenses

 

As a Fund shareholder, you can incur two types of costs: (1) transaction costs, including brokerage commissions on purchases and sales of Fund shares; and (2) ongoing Fund costs, including management fees and other Fund expenses. All funds have ongoing costs, sometimes referred to as operating expenses. The table below shows ongoing costs of investing in the Fund and can help you understand these costs and compare them with those of other funds. The table assumes a $1,000 investment held for the six months indicated.

Actual Fund Expenses

The table below provides information about actual account values and actual expenses in the columns under the heading “Actual.” In these columns the Fund’s actual return, which includes the effect of Fund expenses, is used to calculate the “Ending Account Value.” You can estimate the expenses you paid during the period by following these steps (of course, your account value and expenses will differ from those in this illustration): Divide your account value by $1,000 (if your account had an $8,600 value, then $8,600 ÷ $1,000 = 8.6). Then multiply the result by the number in the row under the headings “Actual” and “Expenses Paid During Period” (if Actual Expenses Paid During Period were $7.50, then 8.6 × $7.50 = $64.50). In this illustration, the actual expenses paid this period are $64.50.

Hypothetical Example for Comparison with Other Funds

Under the heading “Hypothetical” in the table, information is provided about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. This information may not be used to estimate the actual ending account balance or expenses you paid for the period, but it can help you compare ongoing costs of investing in the Fund with those of other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds.

Please note that expenses shown in the table are meant to highlight ongoing costs and do not reflect any transactional costs. Therefore, information under the heading “Hypothetical” is useful in comparing ongoing costs only, and will not help you compare total costs of owning different funds. In addition, if transactional costs were included, your total costs would have been higher.

 

     

Actual

(actual return after expenses)

   

Hypothetical

(5% annual return before expenses)

       
Beginning
Account
Value 4/1/22
    Ending
Account
Value 9/30/22
    Expenses
Paid During
Period
4/1/22–9/30/221
    Ending
Account
Value 9/30/22
    Expenses
Paid During
Period
4/1/22–9/30/221
    Net Annualized
Expense Ratio
 
  $1,000.00     $ 959.30     $ 2.26     $ 1,022.76     $ 2.33       0.46

1. Expenses are equal to the annualized expense ratio for the six-month period as indicated above—in the far right column—multiplied by the simple average account value over the period indicated, and then multiplied by 183/365 to reflect the one-half year period.

 

           
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Franklin Systematic Style Premia ETF

Formerly, Franklin Liberty Systematic Style Premia ETF

 

This semiannual report for Franklin Systematic Style Premia ETF covers the period ended September 30, 2022.

Your Fund’s Goal and Main Investments

The Fund seeks to provide absolute return. The Fund seeks to achieve its investment goal by allocating its assets across two underlying alternative investment strategies, which represent top-down and bottom-up approaches to capturing factor-based risk premia. The strategies consist of a top-down risk premia strategy and a bottom-up long/short equity strategy.

Performance Overview

During the six-month the Fund posted cumulative total returns of +1.13% based on market price and +1.13% based on net asset value (NAV). In comparison, the ICE BofA U.S.

3-Month Treasury Bill Index, which tracks the performance of short-term U.S. government securities with a remaining term to final maturity of less than three months, posted a +0.57% 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 63.

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 -9.22% total return for the six months ended September 30, 2022.1 High inflation amid a strong labor market led to significantly tighter monetary policy, reducing the value of most bonds. Geopolitical instability disrupted financial markets amid the ongoing war in Ukraine, adding to the uncertainty surrounding the course of the global economy. The yield curve continued to narrow, inverting in the second half of the period as investors became increasingly concerned about the economic outlook.

In an effort to control inflation, the U.S. Federal Reserve (Fed) continued to raise the federal funds target rate. The Fed raised the federal funds rate at each of its four meetings during the period to end at a range of 3.00%–3.25%. The Fed noted in its September 2022 meeting that inflation remained elevated amid robust job growth and low unemployment. In order to achieve its goal of 2% long-run inflation, the Fed stated it anticipates making additional increases to the federal funds target rate. Furthermore, the Fed indicated it would continue to reduce its U.S. Treasury (UST) and agency mortgage-backed security holdings.

UST bonds, as measured by the Bloomberg U.S. Treasury Index, posted a -7.96% total return for the six-month period.1 The 10-year UST yield (which moves inversely to price) grew amid high inflation and the Fed’s tightening monetary stance. Mortgage-backed securities (MBS), as measured by the Bloomberg U.S. MBS Index, posted a -9.14% total return for the period as mortgage rates rose to the highest level in over a decade.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. Corporate yield spreads, a measure of the difference in yields between corporate bonds and similarly-dated USTs, rose, reflecting investors’ increased risk-aversion preferences. In this environment, high-yield corporate bonds, as represented by the Bloomberg U.S. Corporate High Yield Bond Index, posted a -10.41% total return, while investment-grade corporate bonds, as represented by the Bloomberg U.S. Corporate Bond Index, posted a -11.95% total return.1

 

Portfolio Composition  
9/30/22  
     

% of Total

Net Assets

 

Common Stocks

     50.9%  

Preferred Stock

     0.1%  

Other Net Assets

     49.0%  

 

1. Source: Morningstar.

The index is unmanaged and includes reinvestment of any income or distributions. It does not reflect any fees, expenses or sales charges. One cannot invest directly in an index, and an index is not representative of the Fund’s portfolio.

See www.franklintempletondatasources.com for additional data provider information.

The dollar value, number of shares or principal amount, and names of all portfolio holdings are listed in the Fund’s Schedule of Investments (SOI). The SOI begins on page 152.

 

           
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FRANKLIN SYSTEMATIC STYLE PREMIA ETF

 

Top 10 Sectors/Industries  
9/30/22  
      % of Total
Net Assets
 

Software

     3.6%  

Semiconductors & Semiconductor Equipment

     3.5%  

Oil, Gas & Consumable Fuels

     3.3%  

Biotechnology

     3.3%  

Insurance

     2.5%  

Specialty Retail

     2.5%  

Interactive Media & Services

     2.5%  

IT Services

     2.0%  

Capital Markets

     1.9%  

Hotels, Restaurants & Leisure

     1.8%  

Investment Strategy

The Fund’s top-down risk premia strategy focuses on value, momentum and carry factors in taking both long and short positions across equity, fixed income, commodity and currency asset classes.

The Fund’s bottom-up long/short equity strategy focuses on quality, value and momentum factors in determining whether to hold long or short positions in individual equity securities. Long/short equity strategies generally seek to produce returns from investments in the equity markets by taking long and short positions in stocks and stock indices (through the use of derivatives or through a short position in an exchange-traded fund). Long positions benefit from an increase in the price of the underlying instrument, while short positions benefit from a decrease in that price.

Under normal market conditions, the top-down risk premia strategy invests primarily in equity, interest rate/bond and commodity index futures; equity and commodity-linked total return swaps; and currency forwards. Under normal market conditions, the bottom-up long/short equity strategy invests primarily in equity securities and equity total return swaps, with equity total return swaps being used to obtain short exposures.

Under normal market conditions, we seek to allocate assets between the two factor-based risk premia alternative investment strategies described above according to each strategy’s estimated risk, as measured by historical returns-based risk models. The allocation to each strategy is driven by the estimated risk contribution of each individual strategy to the Fund’s overall investment strategy, which the investment manager seeks to keep within certain pre-determined bounds.

Through the two strategies, we invest the Fund’s assets based on a systematic investment process for securities selection and asset allocation by utilizing quantitative models. By employing these two approaches, we seek to provide positive absolute return over time while maintaining a relatively low correlation with traditional markets. The exposure to individual factors may vary based on the market opportunity of the individual factors.

The Fund may use derivatives for both hedging and non-hedging (investment) purposes. The Fund’s derivative investments may include, among other instruments: (i) futures contracts, including futures on equity, interest rate/bond and commodity indices; (ii) swaps, including equity and commodity-linked total return swaps; and (iii) currency forward contracts. These derivatives may be used to enhance Fund returns, increase liquidity, gain long or short exposure to certain instruments, markets or factors in a more efficient or less expensive way and/or hedge risks associated with its other portfolio investments. The results of such transactions are expected to represent a material component of the Fund’s investment returns.

 

Top 10 Long Positions       
9/30/22       

Company

Sector/Industry, Country

   % of Total
Net Assets
 
Microsoft Corp.
Software, United States
     1.6%  
Alphabet Inc., C
Interactive Media & Services, United States
     1.1%  
Meta Platforms Inc., A
Interactive Media & Services, United States
     0.9%  
McDonald’s Corp.
Hotels, Restaurants & Leisure, United States
     0.8%  
Texas Instruments Inc.
Semiconductors & Semiconductor Equipment,
United States
     0.8%  
The Home Depot Inc.
Specialty Retail, United States
     0.8%  
Lowe’s Cos Inc.
Specialty Retail, United States
     0.8%  
Broadcom Inc.
Semiconductors & Semiconductor Equipment,
United States
     0.8%  
AbbVie Inc.
Biotechnology, United States
     0.7%  
Cigna Corp.
Health Care Providers & Services, United States
     0.7%  

Manager’s Discussion

During the six months ended September 30, 2022, the Fund’s foreign currency macro strategy, a net long U.S.

 

           
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FRANKLIN SYSTEMATIC STYLE PREMIA ETF

 

dollar position against foreign currencies—which accounted for more than one-third of the Fund’s weighting, on average, during the period—and short government fixed income futures positioning drove positive performance. The long/short single equities strategy also bolstered absolute returns during a period of significant drawdown for equity markets, as contribution from short positioning outweighed detraction from long positioning. In contrast, commodities strategies weighed on returns.

The foreign currency macro strategy had positive results during the period. Value, carry and momentum factors all performed well. Short positioning in the Israeli shekel was a key contributor, owing to our foreign currency carry and value factors. Long positioning in the South African rand partially offset the asset class’s gains.

The Fund’s fixed income positioning also contributed significantly. Our fixed income macro strategies had a positive impact, as short positions in U.S. Treasuries, Gilts and Canadian government bonds, together with long positions in German bunds, contributed more to performance than the detraction from long positions in French, Italian and Australian bonds.

In our long/short single stock equities component, the momentum and quality factors bolstered performance. Our portfolio was long lower volatility stocks and short higher volatility stocks, which also aided performance. In capital terms, the portfolio was net long, and this detracted from performance as well.

Our real estate holdings also detracted, with broad-based losses across the bulk of the portfolio as interest and mortgage rates rose.

The macro equity index futures strategy weighed on performance, as long positions in Canadian, Australian and Japanese indexes (combining value, carry and momentum factors) detracted. Shorts in Mexico, India, the United States and Sweden partially offset the losses.

Commodities strategies detracted from returns, as oil prices fell sharply, and commodities prices broadly declined. Our trend-following strategy was a significant detractor, while our value, carry, and momentum factors were relatively stable.

Top 10 Short Holdings       
9/30/22       
Company
Sector/Industry, Country
   % of Total
Value of
Underlying
Entity
 
Netflix Inc,
Media & Entertainment, United States
     1.5%  
PayPal Holdings Inc.
Software & Services, United States
     1.4%  
Toyota Motor Corp.
Automobiles & Components, Japan
     1.4%  
Zoetis Inc.
Pharmaceuticals, Biotechnology & Life Sciences, United States
     1.4%  
AIA Group Ltd.
Insurance, Hong Kong
     1.4%  
Enbridge Inc.
Energy, Canada
     1.4%  
Medtronic PLC
Health Care Equipment & Services, United States
     1.4%  
Tesla Inc.
Automobiles & Components, United States
     1.3%  
Target Corp.
Retailing, United States
     1.3%  
Intuitive Surgical Inc.
Health Care Equipment & Services, United States
     1.3%  

Thank you for your participation in Franklin Systematic Style Premia ETF. We look forward to serving your future investment needs.

Chandra Seethamraju, Ph.D.

Lead Portfolio Manager

Sundaram Chettiappan, CFA

Vaneet Chadha, CFA

Portfolio Management Team

 

 

The foregoing information reflects our analysis, opinions and portfolio holdings as of September 30, 2022, 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, country, 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.

 

           
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FRANKLIN SYSTEMATIC STYLE PREMIA ETF

 

Performance Summary as of September 30, 2022

Total return reflects reinvestment of the Fund’s dividends and capital gain distributions, if any, and any unrealized gains or losses. Total returns do not include brokerage commissions that may be payable on secondary market transactions. The performance table does not reflect any taxes that a shareholder would pay on Fund dividends, capital gain distributions, if any, or any realized gains on the sale of Fund shares.

Net asset value or “NAV” is the value of one share of a fund as calculated in accordance with the standard formula for valuing mutual fund shares. Market Price returns typically are based upon the official closing price of the ETF’s shares. Since shares of the Fund did not trade in the secondary market until after the Fund’s inception, for the period from inception to the first day of secondary trading (12/20/19), the NAV of the Fund is used as a proxy for the Market Price to calculate market returns. Market and NAV returns assume that dividends and capital gain distributions have been reinvested at Market Price and NAV.

Your dividend income will vary depending on dividends or interest paid by securities in the Fund’s portfolio, adjusted for operating expenses. Capital gain distributions are net profits realized from the sale of portfolio securities.

Performance as of 9/30/221

 

     Cumulative Total Return2      Average Annual Total Return2  
      Based on
NAV3
    

Based on

market price4

     Based on
NAV3
    

Based on

market price4

 

6-Month

     +1.13%        +1.13%        +1.13%        +1.13%  

1-Year

     +5.59%        +5.15%        +5.59%        +5.15%  

Since Inception (12/18/19)

     -5.82%        -6.15%        -2.13%        -2.25%  

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.

 

See page 64 for Performance Summary footnotes.

 

           
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FRANKLIN SYSTEMATIC STYLE PREMIA ETF

PERFORMANCE SUMMARY

 

Total Annual Operating Expenses5

 

  0.65%

All investments involve risks, including possible loss of principal. Stock prices fluctuate, sometimes rapidly and dramatically, due to factors affecting individual companies, particular industries or sectors, or general market conditions. The Fund is actively managed and could experience losses if the manager’s judgment about particular investments, or its evaluation of the risks, potential returns and correlation properties of the various risk premia in which the Fund invests, prove to be incorrect. The manager’s allocation of Fund assets among different strategies, asset classes and investments may not prove beneficial or produce the desired results. Trading models used by the manager for securities selection and asset allocation may become outdated and the historical patterns upon which the models are based may weaken or disappear. There can be no assurance that the factor-based risk premia investment strategies utilized by the manager will enhance Fund performance, reduce volatility or reduce potential loss. Investments in derivatives involve costs and create economic leverage, which may result in significant volatility and cause the Fund to participate in losses (as well as gains) that significantly exceed the Fund’s initial investment. Certain derivatives have the potential for unlimited loss. Investing in derivatives and the use of foreign currency techniques involve special risks and may not achieve the anticipated benefits and/or may result in losses to the Fund. Other risks include illiquidity, mispricing or improper valuation of the derivative, and imperfect correlation between the value of the derivative and the underlying instrument. The Fund may realize losses when a counterparty fails to perform as promised. Currency management strategies could result in losses to the Fund if currencies do not perform as the manager expects. Bond prices generally move in the opposite direction of interest rates. As the prices of bonds in the Fund adjust to a rise in interest rates, the Fund’s share price may decline. Changes in an issuer’s financial strength or in a security’s credit rating may affect its value. Liquidity risk exists when securities or other investments become more difficult to sell, or are unable to be sold, at the price at which they’ve been valued. Special risks are associated with foreign investing, including currency fluctuations, economic instability and political developments; investments in emerging markets involve heightened risks related to the same factors. To the extent the Fund focuses particular countries, regions, industries, sectors or types of investment from time to time, it may be subject to greater risks or adverse developments in such areas of focus than a Fund that invests in a wider variety of countries, regions, industries or sectors or investments. Events such as the spread of deadly diseases, disasters, and financial, political or social disruptions, may heighten risks and adversely affect performance. The Fund’s prospectus also includes a description of the main investment risks.

Russia’s military invasion of Ukraine in February 2022, the resulting responses by the United States and other countries, and the potential for wider conflict could increase volatility and uncertainty in the financial markets and adversely affect regional and global economies. The United States and other countries have imposed broad-ranging economic sanctions on Russia and certain Russian individuals, banking entities and corporations as a response to its invasion of Ukraine. The United States and other countries have also imposed economic sanctions on Belarus and may impose sanctions on other countries that support Russia’s military invasion. These sanctions, as well as any other economic consequences related to the invasion, such as additional sanctions, boycotts or changes in consumer or purchaser preferences or cyberattacks on governments, companies or individuals, may further decrease the value and liquidity of certain Russian securities and securities of issuers in other countries that are subject to economic sanctions related to the invasion.

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

1. The total annual operating expenses are sourced from the Fund’s prospectus available at the time of publication. Actual expenses may be higher and may impact portfolio returns.

2. Total return calculations represent the cumulative and average annual changes in value of an investment over the periods indicated. Return for less than one year, if any, has not been annualized.

3. Assumes reinvestment of distributions based on net asset value.

4. Assumes reinvestment of distributions based on market price.

5. Figures are as stated in the Fund’s current prospectus and may differ from the expense ratios disclosed in the Your Fund’s Expenses and Financial Highlights sections in this report.

See www.franklintempletondatasources.com for additional data provider information.

 

           
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FRANKLIN SYSTEMATIC STYLE PREMIA ETF

 

Your Fund’s Expenses

 

As a Fund shareholder, you can incur two types of costs: (1) transaction costs, including brokerage commissions on purchases and sales of Fund shares; and (2) ongoing Fund costs, including management fees and other Fund expenses. All funds have ongoing costs, sometimes referred to as operating expenses. The table below shows ongoing costs of investing in the Fund and can help you understand these costs and compare them with those of other funds. The table assumes a $1,000 investment held for the six months indicated.

Actual Fund Expenses

The table below provides information about actual account values and actual expenses in the columns under the heading “Actual.” In these columns the Fund’s actual return, which includes the effect of Fund expenses, is used to calculate the “Ending Account Value.” You can estimate the expenses you paid during the period by following these steps (of course, your account value and expenses will differ from those in this illustration): Divide your account value by $1,000 (if your account had an $8,600 value, then $8,600 ÷ $1,000 = 8.6). Then multiply the result by the number in the row under the headings “Actual” and “Expenses Paid During Period” (if Actual Expenses Paid During Period were $7.50, then 8.6 × $7.50 = $64.50). In this illustration, the actual expenses paid this period are $64.50.

Hypothetical Example for Comparison with Other Funds

Under the heading “Hypothetical” in the table, information is provided about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. This information may not be used to estimate the actual ending account balance or expenses you paid for the period, but it can help you compare ongoing costs of investing in the Fund with those of other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds.

Please note that expenses shown in the table are meant to highlight ongoing costs and do not reflect any transactional costs. Therefore, information under the heading “Hypothetical” is useful in comparing ongoing costs only, and will not help you compare total costs of owning different funds. In addition, if transactional costs were included, your total costs would have been higher.

 

     

Actual

(actual return after expenses)

   

Hypothetical

(5% annual return before expenses)

       
Beginning
Account
Value 4/1/22
    Ending
Account
Value 9/30/22
   

Expenses
Paid During
Period

4/1/22–9/30/221

    Ending
Account
Value 9/30/22
   

Expenses
Paid During
Period

4/1/22–9/30/221

    Net Annualized
Expense Ratio
 
  $1,000.00     $ 1,011.30     $ 3.28     $ 1,021.81     $ 3.29       0.65

1. Expenses are equal to the annualized expense ratio for the six-month period as indicated above—in the far right column—multiplied by the simple average account value over the period indicated, and then multiplied by 183/365 to reflect the one-half year period.

 

           
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Franklin U.S. Core Bond ETF

Formerly, Franklin Liberty U.S. Core Bond ETF

 

This semiannual report for Franklin U.S. Core Bond ETF covers the period ended September 30, 2022.

Your Fund’s Goal and Main Investments

The Fund seeks total return. Under normal market conditions, the Fund invests at least 80% of its net assets in bonds of U.S. issuers, including government, corporate debt, mortgage-backed and asset-backed securities. Bonds include debt obligations of any maturity, such as bonds, notes, bills and debentures.

Performance Overview

During the six-month period, the Fund posted cumulative total returns of -9.34% based on market price and -9.38% based on net asset value (NAV). In comparison, the Bloomberg U.S. Aggregate Bond Index, which measures the performance of the investment-grade, U.S. dollar-denominated, fixed-rate taxable bond market, posted a -9.22% total return.1 You can find more of the Fund’s performance data in the Performance Summary beginning on page 69.

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 -9.22% total return for the six months ended September 30, 2022.1 High inflation amid a strong labor market led to significantly tighter monetary policy, reducing the value of most bonds. Geopolitical instability disrupted financial markets amid the ongoing war in Ukraine, adding to the uncertainty surrounding the course of the global economy. The yield curve continued to narrow, inverting in the second half of the period as investors became increasingly concerned about the economic outlook.

In an effort to control inflation, the U.S. Federal Reserve (Fed) continued to raise the federal funds target rate. The Fed raised the federal funds rate at each of its four meetings during the period to end at a range of 3.00%–3.25%. The Fed noted in its September 2022 meeting that inflation remained elevated amid robust job growth and low unemployment. In order to achieve its goal of 2% long-run inflation, the Fed stated it anticipates making additional increases to the federal funds target rate. Furthermore, the Fed indicated it would continue to reduce its U.S. Treasury (UST) and agency mortgage-backed security holdings.

UST bonds, as measured by the Bloomberg U.S. Treasury Index, posted a -7.96% total return for the six-month period.1 The 10-year UST yield (which moves inversely to price) grew amid high inflation and the Fed’s tightening monetary stance. Mortgage-backed securities (MBS), as measured by the Bloomberg U.S. MBS Index, posted a -9.14% total return for the period as mortgage rates rose to the highest level in over a decade.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. Corporate yield spreads, a measure of the difference in yields between corporate bonds and similarly-dated USTs, rose, reflecting investors’ increased risk-aversion preferences. In this environment, high-yield corporate bonds, as represented by the Bloomberg U.S. Corporate High Yield Bond Index, posted a -10.41% total return, while investment-grade corporate bonds, as represented by the Bloomberg U.S. Corporate Bond Index, posted a -11.95% total return.1

 

1. Source: Morningstar.

The index is unmanaged and includes reinvestment of any income or distributions. It does not reflect any fees, expenses or sales charges. One cannot invest directly in an index, and an index is not representative of the Fund’s portfolio.

See www.franklintempletondatasources.com for additional data provider information.

The dollar value, number of shares or principal amount, and names of all portfolio holdings are listed in the Fund’s Schedule of Investments (SOI). The SOI begins on page 168.

 

           
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FRANKLIN U.S. CORE BOND ETF

 

Portfolio Composition       
9/30/22       
      % of Total
Net Assets
 

U.S. Government & Agency Securities

     45.1%  

Mortgage-Backed Securities

     23.9%  

Corporate Bonds & Notes

     21.6%  

Asset-Backed Securities

     3.0%  

Municipal Bonds

     3.0%  

Foreign Government and Agency Securities

     1.6%  

Short-Term Investments & Other Net Assets

     1.8%  

Investment Strategy

The Fund invests predominantly in investment-grade debt securities and, under normal market conditions, is generally expected to have sector, credit and duration exposures comparable to its benchmark index. However, we make investment decisions based upon our own fundamental analysis, which affects the Fund’s sector, credit and duration exposures so that they may vary from the benchmark index. The Fund’s investments in mortgage-backed securities include securities that are issued or guaranteed by the U.S. government, its agencies or instrumentalities, which include mortgage pass-through securities representing interests in pools of mortgage loans issued or guaranteed by the Government National Mortgage Association (Ginnie Mae), the Federal National Mortgage Association (Fannie Mae), and the Federal Home Loan Mortgage Corporation (Freddie Mac).

In addition, the Fund may purchase or sell mortgage-backed securities on a delayed delivery or forward commitment basis through the to-be-announced (TBA) market. With TBA transactions, the particular securities to be delivered must meet specified terms and conditions.

For purposes of pursuing its investment goal, the Fund may enter into various interest-rate and credit-related derivatives, principally U.S. Treasury futures, interest-rate swaps and credit default swaps. The use of these derivative transactions may allow the Fund to obtain net long or short exposures to select interest rates, durations or credit risks. 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.

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. 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.

 

Top 10 Holdings       
9/30/22       
      % of Total
Net Assets
 

U.S. Treasury Note, 2.125%, 2/29/24

     6.8%  

U.S. Treasury Note, 0.375%, 11/30/25

     5.6%  

U.S. Treasury Note, 1.25%, 12/31/26

     5.0%  

U.S. Treasury Note, 0.375%, 1/31/26

     3.8%  

U.S. Treasury Note, 0.50%, 3/31/25

     3.3%  

U.S. Treasury Note, 3.25%, 6/30/27

     2.1%  

U.S. Treasury Bond, 2.00%, 11/15/41

     2.0%  

U.S. Treasury Note, 2.125%, 3/31/24

     1.9%  

U.S. Treasury Bond, 1.375%, 8/15/50

     1.7%  

U.S. Treasury Note, 0.25%, 6/30/25

     1.5%  

Manager’s Discussion

During the six-month period under review, the Fund posted a gross return of -9.38% based on net asset value, underperforming the Bloomberg U.S. Aggregate Bond Index return of -9.22%. Duration positioning was the main positive contributor to returns relative to the benchmark. Throughout the performance period, we maintained a duration less than that of the benchmark. The dramatic rise in U.S. Treasury (UST) yields has resulted in our underweight positions contributing to relative performance (especially the 5-year and 10-year portion of the curve).

Sector allocations weighed modestly on relative performance over the period, led by overweight holdings of sovereign emerging market (EM) securities, municipal bonds (munis), and commercial mortgage-backed securities (CMBS). Conversely, underweight exposure to agency mortgage-backed securities (MBS) benefited relative results. Allocations to corporate credit bonds, asset-backed securities and agency notes had neutral effects on performance.

Security selection detracted from relative results, led by selection in investment-grade corporate bonds, municipal bonds, CMBS and sovereign developed securities.

Conversely, selection in agency MBS and sovereign EM securities contributed to relative performance.

 

           
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FRANKLIN U.S. CORE BOND ETF

 

David Yuen retired effective September 30, 2022, and his responsibilities have been allocated to others in the portfolio management team.

Thank you for your participation in Franklin U.S. Core Bond ETF. We look forward to serving your future investment needs.

David Yuen, CFA, FRM Patrick Klein, Ph.D. Tina Chou

Portfolio Management Team

FRM® is a trademark owned by Global Association of Risk Professionals (GARP).

 

 

The foregoing information reflects our analysis, opinions and portfolio holdings as of September 30, 2022, 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, country, 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.

 

           
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FRANKLIN U.S. CORE BOND ETF

 

Performance Summary as of September 30, 2022

Total return reflects reinvestment of the Fund’s dividends and capital gain distributions, if any, and any unrealized gains or losses. Total returns do not include brokerage commissions that may be payable on secondary market transactions. The performance table does not reflect any taxes that a shareholder would pay on Fund dividends, capital gain distributions, if any, or any realized gains on the sale of Fund shares.

Net asset value or “NAV” is the value of one share of a fund as calculated in accordance with the standard formula for valuing mutual fund shares. Market Price returns typically are based upon the official closing price of the ETF’s shares. Since shares of the Fund did not trade in the secondary market until after the Fund’s inception, for the period from inception to the first day of secondary trading (9/19/19), the NAV of the Fund is used as a proxy for the Market Price to calculate market returns. Market and NAV returns assume that dividends and capital gain distributions have been reinvested at Market Price and NAV.

Your dividend income will vary depending on dividends or interest paid by securities in the Fund’s portfolio, adjusted for operating expenses. Capital gain distributions are net profits realized from the sale of portfolio securities.

Performance as of 9/30/221

 

     Cumulative Total Return2      Average Annual Total Return2  
      Based on
NAV3
     Based on
market price4
     Based on
NAV3
     Based on
market price4
 

6-Month

     -9.38%        -9.34%        -9.38%        -9.34%  

1-Year

     -15.16%        -15.13%        -15.16%        -15.13%  

3-Year

     -9.78%        -9.89%        -3.37%        -3.41%  

Since Inception (9/17/19)

     -9.12%        -9.12%        -3.10%        -3.10%  

 

Distribution Rate5    30-Day Standardized Yield6  

2.91%

     3.79%  

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.

See page 70 for Performance Summary footnotes.

 

           
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FRANKLIN U.S. CORE BOND ETF

PERFORMANCE SUMMARY

 

Distributions (4/1/22–9/30/22)

Net Investment

Income

$0.279757

 

Total Annual Operating Expenses7

 

  0.15%

All investments involve risks, including possible loss of principal. Interest rate movements, unscheduled mortgage prepayments and other risk factors will affect the Fund’s share price and yield. Bond prices, and thus a Fund’s share price, generally move in the opposite direction of interest rates. Therefore, as the prices of bonds in the Fund adjust to a rise in interest rates, the Fund’s share price may decline. Changes in the financial strength of a bond issuer or in a bond’s credit rating may affect its value. The manager’s portfolio selection strategy is not solely based on ESG considerations, and therefore the issuers in which the Fund invests may not be considered ESG-focused companies. Integrating ESG considerations into the investment process is not a guarantee that better performance will be achieved. Events such as the spread of deadly diseases, disasters, and financial, political or social disruptions, may heighten risks and adversely affect performance. The Fund’s prospectus also includes a description of the main investment risks.

Russia’s military invasion of Ukraine in February 2022, the resulting responses by the United States and other countries, and the potential for wider conflict could increase volatility and uncertainty in the financial markets and adversely affect regional and global economies. The United States and other countries have imposed broad-ranging economic sanctions on Russia and certain Russian individuals, banking entities and corporations as a response to its invasion of Ukraine. The United States and other countries have also imposed economic sanctions on Belarus and may impose sanctions on other countries that support Russia’s military invasion. These sanctions, as well as any other economic consequences related to the invasion, such as additional sanctions, boycotts or changes in consumer or purchaser preferences or cyberattacks on governments, companies or individuals, may further decrease the value and liquidity of certain Russian securities and securities of issuers in other countries that are subject to economic sanctions related to the invasion.

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

1. The total annual operating expenses are sourced from the Fund’s prospectus available at the time of publication. Actual expenses may be higher and may impact portfolio returns.

2. Total return calculations represent the cumulative and average annual changes in value of an investment over the periods indicated. Return for less than one year, if any, has not been annualized.

3. Assumes reinvestment of distributions based on net asset value.

4. Assumes reinvestment of distributions based on market price.

5. Distribution rate is based on an annualization of the September dividend and the NAV per share on 9/30/22.

6. The Fund’s 30-day standardized yield is calculated over a trailing 30-day period using the yield to maturity on bonds and/or the dividends accrued on stocks. It may not equal the Fund’s actual income distribution rate, which reflects the Fund’s past dividends paid to shareholders.

7. Figures are as stated in the Fund’s current prospectus and may differ from the expense ratios disclosed in the Your Fund’s Expenses and Financial Highlights sections in this report.

See www.franklintempletondatasources.com for additional data provider information.

 

 

           
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FRANKLIN U.S. CORE BOND ETF

 

Your Fund’s Expenses

 

As a Fund shareholder, you can incur two types of costs: (1) transaction costs, including brokerage commissions on purchases and sales of Fund shares; and (2) ongoing Fund costs, including management fees and other Fund expenses. All funds have ongoing costs, sometimes referred to as operating expenses. The table below shows ongoing costs of investing in the Fund and can help you understand these costs and compare them with those of other funds. The table assumes a $1,000 investment held for the six months indicated.

Actual Fund Expenses

The table below provides information about actual account values and actual expenses in the columns under the heading “Actual.” In these columns the Fund’s actual return, which includes the effect of Fund expenses, is used to calculate the “Ending Account Value.” You can estimate the expenses you paid during the period by following these steps (of course, your account value and expenses will differ from those in this illustration): Divide your account value by $1,000 (if your account had an $8,600 value, then $8,600 ÷ $1,000 = 8.6). Then multiply the result by the number in the row under the headings “Actual” and “Expenses Paid During Period” (if Actual Expenses Paid During Period were $7.50, then 8.6 × $7.50 = $64.50). In this illustration, the actual expenses paid this period are $64.50.

Hypothetical Example for Comparison with Other Funds

Under the heading “Hypothetical” in the table, information is provided about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. This information may not be used to estimate the actual ending account balance or expenses you paid for the period, but it can help you compare ongoing costs of investing in the Fund with those of other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds.

Please note that expenses shown in the table are meant to highlight ongoing costs and do not reflect any transactional costs. Therefore, information under the heading “Hypothetical” is useful in comparing ongoing costs only, and will not help you compare total costs of owning different funds. In addition, if transactional costs were included, your total costs would have been higher.

 

      Actual
(actual return after expenses)
    Hypothetical
(5% annual return before expenses)
       
Beginning
Account
Value 4/1/22
    Ending
Account
Value 9/30/22
    Expenses
Paid During
Period
4/1/22–9/30/221
    Ending
Account
Value 9/30/22
    Expenses
Paid During
Period
4/1/22–9/30/221
    Net Annualized
Expense Ratio
 
  $1,000.00     $ 906.20     $ 0.67     $ 1,024.37     $ 0.71       0.14

1. Expenses are equal to the annualized expense ratio for the six-month period as indicated above—in the far right column—multiplied by the simple average account value over the period indicated, and then multiplied by 183/365 to reflect the one-half year period.

 

           
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Franklin U.S. Low Volatility ETF

Formerly, Franklin Liberty U.S. Low Volatility ETF

 

This semiannual report for Franklin U.S. Low Volatility ETF covers the period ended September 30, 2022.

Your Fund’s Goal and Main Investments

The Fund seeks capital appreciation with an emphasis on lower volatility. Under normal market conditions, the Fund invests at least 80% of its net assets in U.S. investments, and primarily equity securities.

Performance Overview

During the six-month period, the Fund posted cumulative total returns of -14.73% based on market price and -14.61% based on net asset value (NAV). In comparison, the Russell 1000® Index, which measures the performance of the approximately 1,000 largest companies in the Russell 3000® Index, posted a -20.51% 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 75.

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, posted a -20.20% total return for the six months ended September 30, 2022.1 High inflation, rising interest rates and geopolitical instability contributed to a sharp decline in equity prices, particularly as the period progressed. Although consumer spending continued to rise, deteriorating financial conditions negatively impacted consumer sentiment, which improved slightly at the end of the period after falling in June 2022 to the lowest level in over 60 years.

Elevated inflation was a major concern for both consumers and investors, as inflation accelerated in June 2022 to the highest rate since 1981. 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, although much of that increase abated by period-end. The unemployment rate declined marginally from 3.6% in March 2022 to 3.5% in September 2022 as notable employment gains occurred in the leisure and hospitality and health care sectors. Wage growth remained strong throughout the period, adding to some investors’ inflation concerns.

U.S. gross domestic product contracted in the second quarter of 2022, with the economy technically entering a recession, amid lower investments in inventories and fixed assets. An inventory drawdown, declining residential and business investment and lower levels of government spending contributed to the economic slowdown. Rising interest rates translated to higher borrowing costs for individuals and businesses, which dampened economic activity. Mortgage rates reached the highest level since 2007, and new home construction slowed toward period-end.

In an effort to control inflation, the U.S. Federal Reserve (Fed) continued to raise the federal funds target rate. The Fed raised the federal funds rate at each of its four meetings during the period to end at a range of 3.00%–3.25%. The Fed noted in its September 2022 meeting that inflation remained elevated amid robust job growth and low unemployment. Furthermore, the Fed said it would continue to reduce its bond holdings, and Fed Chair Jerome Powell indicated that reducing inflation was likely to require a period of below-trend growth.

 

1. Source: Morningstar.

The index is unmanaged and includes reinvestment of any income or distributions. It does not reflect any fees, expenses or sales charges. One cannot invest directly in an index, and an index is not representative of the Fund’s portfolio.

2. “U.S. companies” are those that (i) are organized under the laws of, or have a principal office in, or for whose securities the principal trading market is, the U.S.; or (ii) derive 50% or more of their total revenue or profit from either goods or services produced, or sales made, in the U.S.; or (iii) have 50% or more of their assets in the U.S.

The dollar value, number of shares or principal amount, and names of all portfolio holdings are listed in the Fund’s Schedule of Investments (SOI). The SOI begins on page 177.

 

           
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FRANKLIN U.S. LOW VOLATILITY ETF

 

Top 10 Sectors/Industries       
9/30/22       
      % of Total
Net Assets
 

Information Technology

     24.4%  

Health Care

     14.5%  

Consumer Discretionary

     12.0%  

Financials

     11.2%  

Industrials

     10.0%  

Communication Services

     7.0%  

Consumer Staples

     6.4%  

Energy

     4.6%  

Real Estate

     3.2%  

Utilities

     3.0%  

 

Top 10 Holdings      
9/30/22      
Company
Sector/Industry
  % of Total
Net Assets
 

Exxon Mobil Corp.

Energy

    1.6%  

DTE Midstream LLC

Energy

    1.5%  

Chevron Corp.

Energy

    1.5%  

Black Knight Inc.

Information Technology

    1.5%  

Synopsys Inc.

Information Technology

    1.4%  

Bristol-Myers Squibb Co.

Health Care

    1.4%  

Automatic Data Processing Inc.

Information Technology

    1.4%  

Microsoft Corp.

Information Technology

    1.4%  

Keysight Technologies Inc.

Information Technology

    1.4%  

Merck & Co. Inc.

Health Care

    1.4%  

Investment Strategy

The Fund invests primarily in equity securities (principally common stocks) of U.S. companies.2 The Fund seeks capital appreciation, while providing a lower level of volatility than the broader equity market as measured by the Russell 1000® Index, meaning the Fund seeks returns that fluctuate less than the returns of the Russell 1000® Index. We apply a fundamentally driven “bottom-up” research process to create a starting universe of eligible securities across a large number of sectors derived from the holdings of a number of Franklin

Templeton equity funds. We screen that universe on a quarterly basis in order to identify those securities with the lowest realized volatility relative to their corresponding sectors, while we also incorporate fundamental views of individual stocks. The Fund’s sector weightings generally are based on the current sector weightings within the Russell 1000® Index. Individual securities in the Fund’s portfolio are generally weighted equally within each sector. We may, from time to time, make adjustments to the Fund’s portfolio as a result of corporate actions, changes to the volatility profile of the Fund’s holdings, or for risk management related purposes.

Manager’s Discussion

The Fund generated negative absolute returns but outperformed its benchmark, the Russell 1000® Index, for the six-month period ended September 30, 2022. Stock selection in the information technology (IT) sector was the most significant contributor to relative performance during the period. Overweight positions relative to the benchmark index in Black Knight and Keysight Technologies, along with a lack of exposure to select IT benchmark holdings, drove the sector’s relative outperformance. Black Knight, which provides software, data and analytics solutions for the mortgage and finance industries, announced in May its planned acquisition by Intercontinental Exchange, while Keysight Technologies, an electronic measurement company, logged double-digit growth in orders and revenue in its recent quarter.

Alphabet, from the consumer discretionary sector, was another contributor to relative performance. The parent company of Google recently fell short of estimates for quarterly earnings and revenue growth, citing currency fluctuations and growing economic uncertainties behind the disappointing figures. The Fund’s relative underweight in Alphabet supported relative returns as a result. Stock selection in consumer discretionary also helped relative performance.

In the communication services sector, overweight positions in media companies Liberty Broadband and Charter Communications detracted. Shares of Liberty Broadband, a communication business provider and holding company, and cable and broadband internet service provider Charter Communications, both declined on concerns of slowing subscriber growth trends amid competition and economic headwinds. Liberty’s main asset is Charter Communications. Meanwhile, stock selection in the energy sector also weighed on performance, though the Fund’s overweight to the top-performing sector limited the detraction.

 

           
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FRANKLIN U.S. LOW VOLATILITY ETF

 

Thank you for your participation in Franklin U.S. Low

Volatility ETF. We look forward to serving your future investment needs.

Todd Brighton, CFA

Portfolio Manager

 

 

The foregoing information reflects our analysis, opinions and portfolio holdings as of September 30, 2022, 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, country, 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.

 

           
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FRANKLIN U.S. LOW VOLATILITY ETF

 

Performance Summary as of September 30, 2022

Total return reflects reinvestment of the Fund’s dividends and capital gain distributions, if any, and any unrealized gains or losses. Total returns do not include brokerage commissions that may be payable on secondary market transactions. The performance table does not reflect any taxes that a shareholder would pay on Fund dividends, capital gain distributions, if any, or any realized gains on the sale of Fund shares.

Net asset value or “NAV” is the value of one share of a fund as calculated in accordance with the standard formula for valuing mutual fund shares. Market Price returns typically are based upon the official closing price of the ETF’s shares. Since shares of the Fund did not trade in the secondary market until after the Fund’s inception, for the period from inception to the first day of secondary trading (9/22/16), the NAV of the Fund is used as a proxy for the Market Price to calculate market returns. Market and NAV returns assume that dividends and capital gain distributions have been reinvested at Market Price and NAV.

Your dividend income will vary depending on dividends or interest paid by securities in the Fund’s portfolio, adjusted for operating expenses. Capital gain distributions are net profits realized from the sale of portfolio securities.

Performance as of 9/30/221

 

     Cumulative Total Return2      Average Annual Total Return2  
     

Based on

NAV3

    

Based on

market price4

    

Based on

NAV3

    

Based on

market price4

 

6-Month

     -14.61%        -14.73%        -14.61%        -14.73%  

1-Year

     -9.55%        -9.58%        -9.55%        -9.58%  

5-Year

     +59.35%        +59.89%        +9.77%        +9.84%  

Since Inception (9/20/16)

     +83.60%        +83.64%        +10.61%        +10.61%  

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.

 

 

See page 76 for Performance Summary footnotes.

 

           
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FRANKLIN U.S. LOW VOLATILITY ETF

PERFORMANCE SUMMARY

 

Distributions (4/1/22–9/30/22)

Net Investment
Income

$0.392342

Total Annual Operating Expenses5

 

  0.29%

All investments involve risks, including possible loss of principal. Stock prices fluctuate, sometimes rapidly and dramatically, due to factors affecting individual companies, particular industries or sectors, or general market conditions. There can be no guarantee that the Fund’s volatility strategy will be successful, and achieving the Fund’s volatility strategy does not mean the Fund will achieve a positive or competitive return. The volatility strategy can also be expected to limit the Fund’s participation in market price appreciation when compared to similar funds that do not attempt this strategy. Smaller and midsize-company stocks have historically experienced more price volatility than larger company stocks, especially over the short term. Events such as the spread of deadly diseases, disasters, and financial, political or social disruptions, may heighten risks and adversely affect performance. The Fund’s prospectus also includes a description of the main investment risks.

Russia’s military invasion of Ukraine in February 2022, the resulting responses by the United States and other countries, and the potential for wider conflict could increase volatility and uncertainty in the financial markets and adversely affect regional and global economies. The United States and other countries have imposed broad-ranging economic sanctions on Russia and certain Russian individuals, banking entities and corporations as a response to its invasion of Ukraine. The United States and other countries have also imposed economic sanctions on Belarus and may impose sanctions on other countries that support Russia’s military invasion. These sanctions, as well as any other economic consequences related to the invasion, such as additional sanctions, boycotts or changes in consumer or purchaser preferences or cyberattacks on governments, companies or individuals, may further decrease the value and liquidity of certain Russian securities and securities of issuers in other countries that are subject to economic sanctions related to the invasion.

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

1. The total annual operating expenses are sourced from the Fund’s prospectus available at the time of publication. Actual expenses may be higher and may impact portfolio returns.

2. Total return calculations represent the cumulative and average annual changes in value of an investment over the periods indicated. Return for less than one year, if any, has not been annualized.

3. Assumes reinvestment of distributions based on net asset value.

4. Assumes reinvestment of distributions based on market price.

5. Figures are as stated in the Fund’s current prospectus and may differ from the expense ratios disclosed in the Your Fund’s Expenses and Financial Highlights sections in this report.

See www.franklintempletondatasources.com for additional data provider information.

 

           
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Your Fund’s Expenses

 

As a Fund shareholder, you can incur two types of costs: (1) transaction costs, including brokerage commissions on purchases and sales of Fund shares; and (2) ongoing Fund costs, including management fees and other Fund expenses. All funds have ongoing costs, sometimes referred to as operating expenses. The table below shows ongoing costs of investing in the Fund and can help you understand these costs and compare them with those of other funds. The table assumes a $1,000 investment held for the six months indicated.

Actual Fund Expenses

The table below provides information about actual account values and actual expenses in the columns under the heading “Actual.” In these columns the Fund’s actual return, which includes the effect of Fund expenses, is used to calculate the “Ending Account Value.” You can estimate the expenses you paid during the period by following these steps (of course, your account value and expenses will differ from those in this illustration): Divide your account value by $1,000 (if your account had an $8,600 value, then $8,600 ÷ $1,000 = 8.6). Then multiply the result by the number in the row under the headings “Actual” and “Expenses Paid During Period” (if Actual Expenses Paid During Period were $7.50, then 8.6 × $7.50 = $64.50). In this illustration, the actual expenses paid this period are $64.50.

Hypothetical Example for Comparison with Other Funds

Under the heading “Hypothetical” in the table, information is provided about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. This information may not be used to estimate the actual ending account balance or expenses you paid for the period, but it can help you compare ongoing costs of investing in the Fund with those of other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds.

Please note that expenses shown in the table are meant to highlight ongoing costs and do not reflect any transactional costs. Therefore, information under the heading “Hypothetical” is useful in comparing ongoing costs only, and will not help you compare total costs of owning different funds. In addition, if transactional costs were included, your total costs would have been higher.

 

     

Actual

(actual return after expenses)

    Hypothetical
(5% annual return before expenses)
       
Beginning
Account
Value 4/1/22
    Ending
Account
Value 9/30/22
   

Expenses

Paid During
Period
4/1/22–9/30/221

    Ending
Account
Value 9/30/22
   

Expenses

Paid During
Period
4/1/22–9/30/221

    Net Annualized
Expense Ratio
 
  $1,000.00     $ 853.90     $ 1.35     $ 1,023.62     $ 1.47       0.29

1. Expenses are equal to the annualized expense ratio for the six-month period as indicated above—in the far right column—multiplied by the simple average account value over the period indicated, and then multiplied by 183/365 to reflect the one-half year period.

 

           
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Franklin U.S. Treasury Bond ETF

Formerly, Franklin Liberty U.S. Treasury Bond ETF

 

This semiannual report for Franklin U.S. Treasury Bond ETF covers the period ended September 30, 2022.

Your Fund’s Goal and Main Investments

The Fund seeks income. Under normal market conditions, the Fund invests at least 80% of its net assets in direct obligations of the U.S. Treasury.

Performance Overview

During the six-month period, the Fund posted cumulative total returns of -7.22% based on market price and -7.22% based on net asset value (NAV). In comparison, the Bloomberg U.S. Treasury Index, which measures the performance of U.S. Treasury bills, posted a -7.96% cumulative total return.1 You can find more of the Fund’s performance data in the Performance Summary beginning on page 80.

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 -9.22% total return for the six months ended September 30, 2022.1 High inflation amid a strong labor market led to significantly tighter monetary policy, reducing the value of most bonds. Geopolitical instability disrupted financial markets amid the ongoing war in Ukraine, adding to the uncertainty surrounding the course of the global economy. The yield curve continued to narrow, inverting in the second half of the period as investors became increasingly concerned about the economic outlook.

In an effort to control inflation, the U.S. Federal Reserve (Fed) continued to raise the federal funds target rate. The Fed raised the federal funds rate at each of its four meetings during the period to end at a range of 3.00%–3.25%. The Fed noted in its September 2022 meeting that inflation

remained elevated amid robust job growth and low unem-

ployment. In order to achieve its goal of 2% long-run inflation, the Fed stated it anticipates making additional increases to the federal funds target rate. Furthermore, the Fed indicated it would continue to reduce its U.S. Treasury (UST) and agency mortgage-backed security holdings.

UST bonds, as measured by the Bloomberg U.S. Treasury Index, posted a -7.96% total return for the six-month period.1 The 10-year UST yield (which moves inversely to price) grew amid high inflation and the Fed’s tightening monetary stance. Mortgage-backed securities (MBS), as measured by the Bloomberg U.S. MBS Index, posted a -9.14% total return for the period as mortgage rates rose to the highest level in over a decade.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. Corporate yield spreads, a measure of the difference in yields between corporate bonds and similarly-dated USTs, rose, reflecting investors’ increased risk-aversion preferences. In this environment, high-yield corporate bonds, as represented by the Bloomberg U.S. Corporate High Yield Bond Index, posted a -10.41% total return, while investment-grade corporate bonds, as represented by the Bloomberg U.S. Corporate Bond Index, posted a -11.95% total return.1

 

Portfolio Composition       
9/30/22       
      % of Total
Net Assets
 

U.S. Government & Agency Securities

     91.7%  

Short-Term Investments & Other Net Assets

     8.3%  

Investment Strategy

The Fund invests at least 80% of its net assets in direct obligations of the U.S. Treasury, including Treasury bonds, bills and notes and investments that provide exposure to direct obligations of the U.S. Treasury. The Fund may also invest in securities issued or guaranteed by the U.S. government, its agencies, or instrumentalities, including government spon-

 

1. Source: Morningstar.

The index is unmanaged and includes reinvestment of any income or distributions. It does not reflect any fees, expenses or sales charges. One cannot invest directly in an index, and an index is not representative of the Fund’s portfolio.

See www.franklintempletondatasources.com for additional data provider information.

The dollar value, number of shares or principal amount, and names of all portfolio holdings are listed in the Fund’s Schedule of Investments (SOI). The SOI begins on page 181.

 

           
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Semiannual Report

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FRANKLIN U.S. TREASURY BOND ETF

 

sored entities and mortgage-backed securities (MBS). In addition, the Fund may purchase or sell MBS on a delayed delivery or forward commitment basis through the to-be-announced (TBA) market. With TBA transactions, the particular securities to be delivered must meet specified terms and conditions.

To pursue its investment goal, the Fund may enter into certain interest rate-related derivative transactions, principally interest rate/bond futures contracts and interest rate swaps. The use of these derivative transactions may allow the Fund to obtain net long or short exposures to select interest rates or durations. These derivatives may be used 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.

We generally buy and hold high quality fixed income securities. Using this straightforward approach, we seek to produce current income with a high degree of credit safety from a conservatively managed portfolio of U.S. Treasury securities. We may utilize quantitative models to identify investment opportunities as part of the portfolio construction process for the Fund. Quantitative models are proprietary systems that rely on mathematical computations to identify investment opportunities. The Fund is an actively managed ETF and, thus, does not seek to replicate the performance of a specified index. Accordingly, the investment manager has discretion on a daily basis to manage the Fund’s portfolio in accordance with the Fund’s investment goal.

Manager’s Discussion

During the six-month period, yield-curve positioning was the primary contributor to outperformance relative to the benchmark, led mainly by the underweight duration on the five- and 10-year parts of curve as yields rose. Over the performance period, yields for Treasuries with maturities less than five years rose more than yields for Treasuries with maturities greater than five years. Underweights on the two-and 30-year parts of the curve also contributed positively to performance relative to the benchmark. Conversely, the Fund was positioned with more duration than the benchmark on the 20-year part of the curve, and this was a modest detractor to relative performance. Our non-benchmark allocation to U.S. Treasury Inflation-Protected Securities (TIPS) detracted from performance relative to the benchmark. Our allocation to agency fixed-rate mortgage-backed securities (MBS) had a largely neutral effect on results.

Top 10 Holdings       
9/30/22       
      % of Total
Net Assets
 

U.S. Treasury Note, 2.375%, 2/29/24

     11.6%  

U.S. Treasury Bond, 2.375%, 2/15/42

     5.2%  

U.S. Treasury Bond, 2.00%, 8/15/51

     5.0%  

U.S. Treasury Note, 1.25%, 4/30/28

     4.3%  

U.S. Treasury Bond, 3.00%, 5/15/42

     4.1%  

U.S. Treasury Note, 0.375%, 1/31/26

     3.8%  

U.S. Treasury Note, 1.50%, 11/30/24

     3.8%  

U.S. Treasury Note, 1.375%, 12/31/28

     3.8%  

U.S. Treasury Note, 0.25%, 7/31/25

     3.8%  

U.S. Treasury Note, 2.125%, 11/30/24

     3.4%  

Thank you for your participation in Franklin U.S. Treasury Bond ETF. We look forward to serving your future investment needs.

Warren Keyser

Patrick Klein, Ph.D.

Portfolio Management Team

 

 

The foregoing information reflects our analysis, opinions and portfolio holdings as of September 30, 2022, 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, country, 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.

 

           
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FRANKLIN U.S. TREASURY BOND ETF

 

Performance Summary as of September 30, 2022

Total return reflects reinvestment of the Fund’s dividends and capital gain distributions, if any, and any unrealized gains or losses. Total returns do not include brokerage commissions that may be payable on secondary market transactions. The performance table does not reflect any taxes that a shareholder would pay on Fund dividends, capital gain distributions, if any, or any realized gains on the sale of Fund shares.

Net asset value or “NAV” is the value of one share of a fund as calculated in accordance with the standard formula for valuing mutual fund shares. Market Price returns typically are based upon the official closing price of the ETF’s shares. Since shares of the Fund did not trade in the secondary market until after the Fund’s inception, for the period from inception to the first day of secondary trading (6/11/20), the NAV of the Fund is used as a proxy for the Market Price to calculate market returns. Market and NAV returns assume that dividends and capital gain distributions have been reinvested at Market Price and NAV.

Your dividend income will vary depending on dividends or interest paid by securities in the Fund’s portfolio, adjusted for operating expenses. Capital gain distributions are net profits realized from the sale of portfolio securities.

Performance as of 9/30/221

 

     Cumulative Total Return2      Average Annual Total Return2  
      Based on
NAV3
     Based on
market price4
     Based on
NAV3
     Based on
market price4
 

6-Month

     -7.22%        -7.22%        -7.22%        -7.22%  

1-Year

     -11.90%        -11.83%        -11.90%        -11.83%  

Since Inception (6/9/20)

     -13.34%        -13.34%        -6.01%        -6.01%  

 

Distribution Rate5