SEMIANNUAL REPORT

FRANKLIN TEMPLETON

ETF TRUST

September 30, 2021

 

LOGO

 

LOGO

 

Franklin Disruptive Commerce ETF

Franklin Exponential Data ETF

Franklin Genomic Advancements ETF

Franklin Intelligent Machines ETF

Franklin Liberty Federal Intermediate Tax-Free

Bond Opportunities ETF

Franklin Liberty Federal Tax-Free Bond ETF

Franklin Liberty High Yield Corporate ETF

Franklin Liberty International Aggregate Bond ETF

Franklin Liberty Investment Grade Corporate ETF

Franklin Liberty Senior Loan ETF

Franklin Liberty Systematic Style Premia ETF

Franklin Liberty U.S. Core Bond ETF

Franklin Liberty U.S. Low Volatility ETF

Franklin Liberty U.S. Treasury Bond ETF

Franklin Liberty Ultra Short Bond ETF


Contents        
Semiannual Report       
Franklin Disruptive Commerce ETF      2  
Franklin Exponential Data ETF      7  
Franklin Genomic Advancements ETF      12  
Franklin Intelligent Machines ETF      17  
Franklin Liberty Federal Intermediate Tax-Free Bond Opportunities ETF      22  
Franklin Liberty Federal Tax-Free Bond ETF      28  
Franklin Liberty High Yield Corporate ETF      34  
Franklin Liberty International Aggregate Bond ETF      40  
Franklin Liberty Investment Grade Corporate ETF      46  
Franklin Liberty Senior Loan ETF      52  
Franklin Liberty Systematic Style Premia ETF      58  
Franklin Liberty U.S. Core Bond ETF      64  
Franklin Liberty U.S. Low Volatility ETF      70  
Franklin Liberty U.S. Treasury Bond ETF      76  
Franklin Liberty Ultra Short Bond ETF      82  
Financial Highlights and Statements of Investments      88  
Financial Statements      186  
Notes to Financial Statements      202  
Shareholder Information      228  

 

 

Not FDIC Insured   |   May Lose Value   |   No Bank Guarantee

 

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

 

           
franklintempleton.com  

Semiannual Report

             1


SEMIANNUAL REPORT

Franklin Disruptive Commerce ETF

 

This semiannual report for Franklin Disruptive Commerce ETF covers the period ended September 30, 2021.

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 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 payments, 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 +0.16% based on market price and +0.39% based on net asset value (NAV). In comparison, the Russell 3000® Index posted a +8.13% 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 4.

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.

 

Portfolio Composition       
9/30/21       
     

% of Total

Net Assets

 

IT Services

     24.7%  

Internet & Direct Marketing Retail

     23.9%  

Software

     17.5%  

Entertainment

     11.3%  

Interactive Media & Services

     6.6%  

Hotels, Restaurants & Leisure

     4.9%  

Specialty Retail

     3.5%  

Other

     5.8%  

Short-Term Investments & Other Net Assets

     1.8%  

Economic and Market Overview

U.S. equities, as measured by the Standard & Poor’s® 500 Index (S&P 500®), posted a +9.18% total return for the six months ended September 30, 2021.2 Stocks benefited from the continued economic recovery, the ongoing implementation of novel coronavirus (COVID-19) vaccination programs and easing pandemic restrictions. The percentage of the population that received at least one vaccine dose more than doubled during the six-month period. A rebound in corporate earnings and the U.S. Senate’s passage of a bipartisan infrastructure bill further bolstered investor sentiment, helping equities to reach new all-time price highs late in the six-month period.

The U.S. economy continued to recover amid declining unemployment, wage growth and high business confidence. Gross domestic product growth was robust, as strong consumer spending continued to support the economy. The ongoing growth of the economy led the U.S. to surpass its pre-pandemic output in 2021’s second quarter.

The inflation rate was elevated during the six-month period amid increased demand and supply-chain bottlenecks, with the price pressures coming principally from the areas particularly impacted by the shutdown, such as used vehicles, airfares, semiconductors and energy. Personal consumption expenditure, a measure of inflation, also rose dramatically during the period, representing the highest 12-month increase in decades. The unemployment rate declined from 6.0% in March 2021 to 4.8% in September 2021 as job openings increased, but a relative lack of available workers fueled wage growth, adding to some investors’ inflation concerns.

In an effort to support the economy, the U.S. Federal Reserve (Fed) kept the federal funds target rate at a record-low range of 0.00%–0.25%. The Fed also maintained quantitative easing measures aimed at ensuring credit flows to borrowers and supporting credit markets with open-ended U.S. Treasury and mortgage bond purchasing. In its September 2021 meeting statement, the Fed indicated that it soon plans to reduce its purchases of U.S. Treasury and

 

1. Source: FactSet. 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.

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 Statement of Investments (SOI). The SOI begins on page 89.

 

           
2             

Semiannual Report

  franklintempleton.com


FRANKLIN DISRUPTIVE COMMERCE ETF

 

mortgage-backed securities but declined to provide a timetable. The Fed also maintained that it views inflation as partially transitory, and that further employment progress was needed before the Fed would consider raising the range for the federal funds target rate.

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 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 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. Although we search for investments across a large number of sectors, we expect to concentrate our investments in consumer discretionary-related industries.

 

Top 10 Holdings  
9/30/21  
Company
Sector/Industry
   % of Total
Net Assets
 
Sea Ltd., ADR
Entertainment
     7.5%  
Shopify Inc., A
IT Services
     6.0%  
Amazon.com Inc.
Internet & Direct Marketing Retail
     5.4%  
MercadoLibre Inc.
Internet & Direct Marketing Retail
     5.0%  
Fiverr International Ltd.
Internet & Direct Marketing Retail
     3.8%  
Square Inc., A
IT Services
     3.8%  
PayPal Holdings Inc.
IT Services
     3.8%  
Carvana Co.
Specialty Retail
     3.5%  
DocuSign Inc.
Software
     3.5%  
Avalara Inc.
Software
     3.2%  

Manager’s Discussion

During the reporting period, the information technology (IT), communications services and financials sectors contributed to absolute performance. In IT, performance was boosted by cloud-based commerce platform Shopify, electronic signature company DocuSign and tax software provider Avalara. In communication services, online gaming services company Sea, business intelligence data provider ZoomInfo Technologies and social media network Facebook (not held at period-end) helped performance. In financials, digital payments company Kaspi.KZ aided returns.

Turning to detractors, the consumer discretionary, real estate and industrials sectors hurt absolute performance. In consumer discretionary, detractors included freelance marketplace provider Fiverr International, direct-to-consumer food distribution app provider Pinduoduo and online shopping platform Meituan Dianping. In real estate, housing transactions services provider KE Holdings (not held at period-end) and online real estate brokerage Redfin hurt performance. In industrials, ride-sharing app provider Uber Technologies (not held at period-end) hurt results.

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

Matthew J. Moberg, CPA

Portfolio Manager

 

 

The foregoing information reflects our analysis, opinions and portfolio holdings as of September 30, 2021, 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  

Semiannual Report

             3


FRANKLIN DISRUPTIVE COMMERCE ETF

 

Performance Summary as of September 30, 2021

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. The price used to calculate market return (Market Price) is determined by using the midpoint between the highest bid and the lowest offer on the primary stock exchange on which shares of a fund are listed for trading, as of the time that such fund’s NAV is calculated. 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 9/30/21

     Cumulative Total Return1      Average Annual Total Return1  
      Based on
NAV2
    

Based on

market price3

     Based on
NAV2
    

Based on

market price3

 

6-Month

     +0.39%        +0.16%        +0.39%        +0.16%  

1-Year

     +16.29%        +16.14%        +16.29%        +16.14%  

Since Inception (2/25/20)

     +97.60%        +97.44%        +53.17%        +53.10%  

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.

See page 5 for Performance Summary footnotes.

 

           
4             

Semiannual Report

  franklintempleton.com


FRANKLIN DISRUPTIVE COMMERCE ETF

PERFORMANCE SUMMARY

 

Total Annual Operating Expenses4

 

  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. 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.

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

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

3. Assumes reinvestment of distributions based on market price.

4. Figures are effective as of October 1, 2021 (as stated in the Fund’s prospectus supplement dated October  1, 2021) and may differ from the expense ratios disclosed in the Your Fund’s Expenses and Financial Highlights section in this report. In periods of market volatility, assets may decline significantly, causing total annual Fund operating expenses to become higher than the figures shown.

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

 

           
franklintempleton.com  

Semiannual Report

             5


FRANKLIN DISRUPTIVE COMMERCE 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 ETFs. 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 4/1/21
    Ending
Account
Value 9/30/21
    Expenses
Paid During
Period
4/1/21–9/30/211,2
    Ending
Account
Value 9/30/21
    Expenses
Paid During
Period
4/1/21–9/30/211,2
    Net Annualized
Expense Ratio2
 
  $1,000.00     $ 1,003.90     $ 2.51     $ 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.

2. Reflects expenses after fee waivers and expense reimbursements.

 

           
6             

Semiannual Report

  franklintempleton.com


Franklin Exponential Data ETF

 

This semiannual report for Franklin Exponential Data ETF covers the period ended September 30, 2021.

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 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 +16.30% based on market price and +16.37% based on net asset value (NAV). In comparison, the Russell 3000® Index posted a +8.13% 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 9.

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.

 

Portfolio Composition       
9/30/21       
      % of Total
Net Assets
 

Software

     40.8%  

Interactive Media & Services

     23.2%  

IT Services

     14.4%  

Capital Markets

     5.4%  

Equity Real Estate Investment Trusts (REITs)

     4.3%  

Health Care Technology

     2.1%  

Electronic Equipment, Instruments & Components

     2.1%  

Other

     6.9%  

Short-Term Investments & Other Net Assets

     0.8%  

Economic and Market Overview

U.S. equities, as measured by the Standard & Poor’s 500 Index (S&P 500), posted a +9.18% total return for the six months ended September 30, 2021.2 Stocks benefited from the continued economic recovery, the ongoing implementation of novel coronavirus (COVID-19) vaccination programs and easing pandemic restrictions. The percentage of the population that received at least one vaccine dose more than doubled during the six-month period. A rebound in corporate earnings and the U.S. Senate’s passage of a bipartisan infrastructure bill further bolstered investor sentiment, helping equities to reach new all-time price highs late in the six-month period.

The U.S. economy continued to recover amid declining unemployment, wage growth and high business confidence. Gross domestic product growth was robust, as strong consumer spending continued to support the economy. The ongoing growth of the economy led the U.S. to surpass its pre-pandemic output in 2021’s second quarter.

The inflation rate was elevated during the six-month period amid increased demand and supply-chain bottlenecks, with the price pressures coming principally from the areas particularly impacted by the shutdown, such as used vehicles, airfares, semiconductors and energy. Personal consumption expenditure, a measure of inflation, also rose dramatically during the period, representing the highest 12-month increase in decades. The unemployment rate declined from 6.0% in March 2021 to 4.8% in September 2021 as job openings increased, but a relative lack of available workers fueled wage growth, adding to some investors’ inflation concerns.

In an effort to support the economy, the U.S. Federal Reserve (Fed) kept the federal funds target rate at a record-low range of 0.00%–0.25%. The Fed also maintained quantitative easing measures aimed at ensuring credit flows to borrowers and supporting credit markets with open-ended U.S. Treasury and mortgage bond purchasing. In its September 2021 meeting statement, the Fed indicated that it soon plans to reduce its purchases of U.S. Treasury and

 

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 Statement of Investments (SOI). The SOI begins on page 92.

 

           
franklintempleton.com  

Semiannual Report

             7


FRANKLIN EXPONENTIAL DATA ETF

 

mortgage-backed securities but declined to provide a timetable. The Fed also maintained that it views inflation as partially transitory, and that further employment progress was needed before the Fed would consider raising the range for the federal funds target rate.

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 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. Although we search for investments across a large number of sectors, we expect to concentrate our investments in information technology-related industries.

 

Top 10 Holdings       
9/30/21       
Company
Sector/Industry
  

% of Total

Net Assets

 
Snap Inc., A
Media & Entertainment
     5.8%  
Alphabet Inc., A
Software & Services
     5.5%  
Datadog Inc., A
Software & Services
     4.5%  
Fortinet Inc.
Software & Services
     4.4%  
Zscaler Inc.
Software & Services
     3.9%  
Crowdstrike Holdings Inc., A
Software & Services
     3.4%  
ZoomInfo Technologies Inc., A
Media & Entertainment
     3.3%  
Palo Alto Networks Inc.
Software & Services
     3.2%  
Microsoft Corp.
Software & Services
     3.1%  
Twitter Inc.
Media & Entertainment
     3.0%  

Manager’s Discussion

During the reporting period, the information technology (IT), communication services and real estate sectors contributed

to absolute performance. In IT, contributors included cloud application monitoring platform Datadog and cybersecurity companies Fortinet and Zscaler. In communication services, photo-centric social media company Snap, Google parent company Alphabet and social media network Facebook helped results. In real estate, data center operator Equinix boosted performance.

Turning to detractors, the health care sector hurt absolute performance. Chemical simulation software company Schrodinger detracted from the sector. Elsewhere, social media company Pinterest and internet services company Tencent Holdings also hurt results.

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

Matthew J. Moberg, CPA

Portfolio Manager

 

 

The foregoing information reflects our analysis, opinions and portfolio holdings as of September 30, 2021, 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.

 

           
8             

Semiannual Report

  franklintempleton.com


FRANKLIN EXPONENTIAL DATA ETF

 

Performance Summary as of September 30, 2021

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. The price used to calculate market return (Market Price) is determined by using the midpoint between the highest bid and the lowest offer on the primary stock exchange on which shares of a fund are listed for trading, as of the time that such fund’s NAV is calculated. 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 9/30/21

 

     Cumulative Total Return1     

Average Annual Total Return1

 
      Based on
NAV2
     Based on
market price3
     Based on
NAV2
     Based on
market price3
 

6-Month

     +16.37%        +16.30%        +16.37%        +16.30%  

Since Inception (1/12/21)

     +8.64%        +8.72%        +8.64%        +8.72%  

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 10 for Performance Summary footnotes.

 

           
franklintempleton.com  

Semiannual Report

             9


FRANKLIN EXPONENTIAL DATA ETF

PERFORMANCE SUMMARY

 

Total Annual Operating Expenses4

 

  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. 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.

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

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

3. Assumes reinvestment of distributions based on market price.

4. Figures are effective as of October 1, 2021 (as stated in the Fund’s prospectus supplement dated October 1, 2021) and may differ from the expense ratios disclosed in the Your Fund’s Expenses and Financial Highlights section in this report. In periods of market volatility, assets may decline significantly, causing total annual Fund operating expenses to become higher than the figures shown.

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

 

           
10             

Semiannual Report

  franklintempleton.com


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 x $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 4/1/21
    Ending
Account
Value 9/30/21
    Expenses
Paid During
Period
4/1/21–9/30/211,2
    Ending
Account
Value 9/30/21
    Expenses
Paid During
Period
4/1/21–9/30/211,2
    Net Annualized
Expense Ratio2
 
  $1,000.00     $ 1,163.70     $ 1.36     $ 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.

2. Reflects expenses after fee waivers and expense reimbursements.

 

           
franklintempleton.com  

Semiannual Report

             11


Franklin Genomic Advancements ETF

 

This semiannual report for Franklin Genomic Advancements ETF covers the period ended September 30, 2021.

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 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 +20.66% based on market price and +20.83% based on net asset value (NAV). In comparison, the Russell 3000® Index posted a +8.13% 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 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.

 

Portfolio Composition       
9/30/21       
      % of Total
Net Assets
 

Life Sciences Tools & Services

     52.2%  

Biotechnology

     32.4%  

Health Care Technology

     4.0%  

Pharmaceuticals

     3.3%  

Health Care Equipment & Supplies

     2.5%  

Semiconductors & Semiconductor Equipment

     2.3%  

Health Care Providers & Services

     2.2%  

Other

     0.8%  

Short-Term Investments & Other Net Assets

     0.3%  

Economic and Market Overview

U.S. equities, as measured by the Standard & Poor’s 500 Index (S&P 500), posted a +9.18% total return for the six months ended September 30, 2021.2 Stocks benefited from the continued economic recovery, the ongoing implementation of novel coronavirus (COVID-19) vaccination programs and easing pandemic restrictions. The percentage of the population that received at least one vaccine dose more than doubled during the six-month period. A rebound in corporate earnings and the U.S. Senate’s passage of a bipartisan infrastructure bill further bolstered investor sentiment, helping equities to reach new all-time price highs late in the six-month period.

The U.S. economy continued to recover amid declining unemployment, wage growth and high business confidence. Gross domestic product growth was robust, as strong consumer spending continued to support the economy. The ongoing growth of the economy led the U.S. to surpass its pre-pandemic output in 2021’s second quarter.

The inflation rate was elevated during the six-month period amid increased demand and supply-chain bottlenecks, with the price pressures coming principally from the areas particularly impacted by the shutdown, such as used vehicles, airfares, semiconductors and energy. Personal consumption expenditure, a measure of inflation, also rose dramatically during the period, representing the highest 12-month increase in decades. The unemployment rate declined from 6.0% in March 2021 to 4.8% in September 2021 as job openings increased, but a relative lack of available workers fueled wage growth, adding to some investors’ inflation concerns.

In an effort to support the economy, the U.S. Federal Reserve (Fed) kept the federal funds target rate at a record-low range of 0.00%–0.25%. The Fed also maintained quantitative easing measures aimed at ensuring credit flows to borrowers and supporting credit markets with open-ended U.S. Treasury and mortgage bond purchasing. In its September 2021 meeting statement, the Fed indicated that it soon plans to reduce its purchases of U.S. Treasury and

 

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 Statement of Investments (SOI). The SOI begins on page 95.

 

           
12             

Semiannual Report

  franklintempleton.com


FRANKLIN GENOMIC ADVANCEMENTS ETF

 

mortgage-backed securities but declined to provide a timetable. The Fed also maintained that it views inflation as partially transitory, and that further employment progress was needed before the Fed would consider raising the range for the federal funds target rate.

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 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. Although we search for investments across a large number of sectors, we expect to concentrate our investments in health care-related industries.

 

Top 10 Holdings       
9/30/21       

Company

Sector/Industry

   % of Total
Net Assets
 
Moderna Inc.
Biotechnology
     6.9%  
Repligen Corp.
Life Sciences Tools & Services
     6.5%  
Intellia Therapeutics Inc.
Biotechnology
     6.1%  
BioNTech SE, ADR
Biotechnology
     5.6%  
Natera Inc.
Biotechnology
     4.6%  
Illumina Inc.
Life Sciences Tools & Services
     4.4%  
Lonza Group AG
Life Sciences Tools & Services
     3.5%  
Thermo Fisher Scientific Inc.
Life Sciences Tools & Services
     3.4%  
Catalent Inc.
Pharmaceuticals
     3.3%  
Charles River Laboratories International Inc.
Life Sciences Tools & Services
     3.1%  

Manager’s Discussion

During the reporting period, the health care sector supported absolute performance. Within the sector, contributors included vaccine developer Moderna, genome-editing biopharmaceuti-

cals company Intellia Therapeutics, immunotherapy developer BioNTech and biopharmaceutical development technology platform company WuXi Biologics (Cayman). The information technology sector also helped absolute results, though to a lesser extent. Within the sector, chipmaker NVIDIA contributed.

The materials sector slightly detracted from absolute results due to its sole holding, agricultural chemical and seed company Corteva. Elsewhere, more significant detractors included cancer screening company Guardant Health and cancer drug developer Iovance Biotherapeutics (not held at period-end).

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

Matthew J. Moberg, CPA

Portfolio Manager

 

 

The foregoing information reflects our analysis, opinions and portfolio holdings as of September 30, 2021, 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  

Semiannual Report

             13


FRANKLIN GENOMIC ADVANCEMENTS ETF

 

Performance Summary as of September 30, 2021

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. The price used to calculate market return (Market Price) is determined by using the midpoint between the highest bid and the lowest offer on the primary stock exchange on which shares of a fund are listed for trading, as of the time that such fund’s NAV is calculated. 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 9/30/21

 

     Cumulative Total Return1     

Average Annual Total Return1

 
      Based on
NAV2
     Based on
market price3
     Based on
NAV2
     Based on
market price3
 

6-Month

     +20.83%        +20.66%        +20.83%        +20.66%  

1-Year

     +49.48%        +49.19%        +49.48%        +49.19%  

Since Inception (2/25/20)

     +109.33%        +109.53%        +58.80%        +58.90%  

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 15 for Performance Summary footnotes.

 

           
14             

Semiannual Report

  franklintempleton.com


FRANKLIN GENOMIC ADVANCEMENTS ETF

PERFORMANCE SUMMARY

 

Total Annual Operating Expenses4

 

  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. 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.

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

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

3. Assumes reinvestment of distributions based on market price.

4. Figures are effective as of October 1, 2021 (as stated in the Fund’s prospectus supplement dated October 1, 2021) and may differ from the expense ratios disclosed in the Your Fund’s Expenses and Financial Highlights section in this report. In periods of market volatility, assets may decline significantly, causing total annual Fund operating expenses to become higher than the figures shown.

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

 

           
franklintempleton.com  

Semiannual Report

             15


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 x $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 4/1/21
    Ending
Account
Value 9/30/21
    Expenses
Paid During
Period
4/1/21–9/30/211,2
    Ending
Account
Value 9/30/21
    Expenses
Paid During
Period
4/1/21–9/30/211,2
    Net Annualized
Expense Ratio2
 
  $1,000.00     $ 1,208.30     $ 2.77     $ 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.

2. Reflects expenses after fee waivers and expense reimbursements.

 

           
16             

Semiannual Report

  franklintempleton.com


Franklin Intelligent Machines ETF

 

This semiannual report for Franklin Intelligent Machines ETF covers the period ended September 30, 2021.

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 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 +12.06% based on market price and +12.07% based on net asset value (NAV). In comparison, the Russell 3000® Index posted a +8.13% 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 19.

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.

 

Portfolio Composition       
9/30/21       
      % of Total
Net Assets
 

Semiconductors & Semiconductor Equipment

     23.3%  

Software

     20.1%  

Health Care Equipment & Supplies

     15.5%  

Electronic Equipment, Instruments & Components

     9.9%  

Automobiles

     8.7%  

Technology Hardware, Storage & Peripherals

     5.9%  

Aerospace & Defense

     4.8%  

Other*

     11.1%  

Short-Term Investments & Other Net Assets

     1.2%  

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

Economic and Market Overview

U.S. equities, as measured by the Standard & Poor’s 500 Index (S&P 500), posted a +9.18% total return for the six months ended September 30, 2021.2 Stocks benefited from the continued economic recovery, the ongoing implementation of novel coronavirus (COVID-19) vaccination programs and easing pandemic restrictions. The percentage of the population that received at least one vaccine dose more than doubled during the six-month period. A rebound in corporate earnings and the U.S. Senate’s passage of a bipartisan infrastructure bill further bolstered investor sentiment, helping equities to reach new all-time price highs late in the six-month period.

The U.S. economy continued to recover amid declining unemployment, wage growth and high business confidence. Gross domestic product growth was robust, as strong consumer spending continued to support the economy. The ongoing growth of the economy led the U.S. to surpass its pre-pandemic output in 2021’s second quarter.

The inflation rate was elevated during the six-month period amid increased demand and supply-chain bottlenecks, with the price pressures coming principally from the areas particularly impacted by the shutdown, such as used vehicles, airfares, semiconductors and energy. Personal consumption expenditure, a measure of inflation, also rose dramatically during the period, representing the highest 12-month increase in decades. The unemployment rate declined from 6.0% in March 2021 to 4.8% in September 2021 as job openings increased, but a relative lack of available workers fueled wage growth, adding to some investors’ inflation concerns.

In an effort to support the economy, the U.S. Federal Reserve (Fed) kept the federal funds target rate at a record-low range of 0.00%–0.25%. The Fed also maintained quantitative easing measures aimed at ensuring credit flows to borrowers and supporting credit markets with open-ended U.S. Treasury and mortgage bond purchasing. In its September 2021 meeting statement, the Fed indicated that it soon plans to reduce its purchases of U.S. Treasury and mortgage-backed securities but declined to provide a timetable. The Fed also maintained that it views inflation as partially

 

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 Statement of Investments (SOI). The SOI begins on page 98.

 

           
franklintempleton.com  

Semiannual Report

             17


FRANKLIN INTELLIGENT MACHINES ETF

 

transitory, and that further employment progress was needed before the Fed would consider raising the range for the federal funds target rate.

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 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. Although we search for investments across a large number of sectors, we expect to have significant investments in particular sectors, including technology.

 

Top 10 Holdings       
9/30/21       
Company
Sector/Industry
   % of Total
Net Assets
 
Tesla Inc.
Automobiles
     8.3%  
Intuitive Surgical Inc.
Health Care Equipment & Supplies
     6.2%  
Apple Inc.
Technology Hardware, Storage & Peripherals
     5.9%  
NVIDIA Corp.
Semiconductors & Semiconductor Equipment
     4.6%  
ASML Holding N.V.
Semiconductors & Semiconductor Equipment
     4.3%  
Axon Enterprise Inc.
Aerospace & Defense
     3.4%  
Zebra Technologies Corp., A
Electronic Equipment, Instruments & Components
     3.1%  
Taiwan Semiconductor Manufacturing Co. Ltd., Sponsored ADR
Semiconductors & Semiconductor Equipment
     3.0%  
ANSYS Inc.
Software
     2.4%  
Synopsys Inc.
Software
     2.4%  

Manager’s Discussion

During the reporting period, sectors that contributed to the Fund’s absolute performance included information technology (IT), health care and consumer discretionary. In IT,

contributors included chipmaker NVIDIA, consumer technology firm Apple and software developer tools company Atlassian. From health care, robotic surgical tools manufacturer Intuitive Surgical, blood sugar monitoring device company DexCom and veterinary products and services company IDEXX Laboratories boosted results. Electric vehicle manufacturer Tesla lifted performance in the consumer discretionary sector.

The industrials sector hurt absolute performance. In the sector, detractors included custom manufacturer Proto Labs (not held at period-end), unmanned aerial vehicle company Aerovironment and defense contractor Kratos Defence & Security Solutions. Elsewhere, telemedicine company Teladoc Health (not held at period-end) also hurt results.

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

Matthew J. Moberg, CPA

Portfolio Manager

 

 

The foregoing information reflects our analysis, opinions and portfolio holdings as of September 30, 2021, 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.

 

           
18             

Semiannual Report

  franklintempleton.com


FRANKLIN INTELLIGENT MACHINES ETF

 

Performance Summary as of September 30, 2021

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. The price used to calculate market return (Market Price) is determined by using the midpoint between the highest bid and the lowest offer on the primary stock exchange on which shares of a fund are listed for trading, as of the time that such fund’s NAV is calculated. 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 9/30/21

 

     Cumulative Total Return1      Average Annual Total Return1  
      Based on
NAV2
     Based on
market price3
     Based on
NAV2
     Based on
market price3
 

6-Month

     +12.07%        +12.06%        +12.07%        +12.06%  

1-Year

     +42.25%        +41.92%        +42.25%        +41.92%  

Since Inception (2/25/20)

     +93.86%        +93.98%        +51.35%        +51.41%  

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 20 for Performance Summary footnotes.

 

           
franklintempleton.com  

Semiannual Report

             19


FRANKLIN INTELLIGENT MACHINES ETF

PERFORMANCE SUMMARY

 

Total Annual Operating Expenses4

 

  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. 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.

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

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

3. Assumes reinvestment of distributions based on market price.

4. Figures are effective as of October 1, 2021 (as stated in the Fund’s prospectus supplement dated October 1, 2021) and may differ from the expense ratios disclosed in the Your Fund’s Expenses and Financial Highlights section in this report. In periods of market volatility, assets may decline significantly, causing total annual Fund operating expenses to become higher than the figures shown.

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

 

           
20             

Semiannual Report

  franklintempleton.com


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 x $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 4/1/21
    Ending
Account
Value 9/30/21
    Expenses
Paid During
Period
4/1/21–9/30/211,2
    Ending
Account
Value 9/30/21
    Expenses
Paid During
Period
4/1/21–9/30/211,2
    Net Annualized
Expense Ratio2
 
  $1,000.00     $ 1,120.70     $ 2.66     $ 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.

2. Reflects expenses after fee waivers and expense reimbursements.

 

           
franklintempleton.com  

Semiannual Report

             21


Franklin Liberty Federal Intermediate Tax-Free Bond Opportunities ETF

 

This semiannual report for Franklin Liberty Federal Intermediate Tax-Free Bond Opportunities ETF covers the period ended September 30, 2021.

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 The Fund seeks to maintain a dollar-weighted average portfolio maturity (the time in which the debt must be repaid) of three to 10 years, and may invest in municipal securities in any rating category by U.S. nationally recognized rating services (or comparable unrated or short-term rated securities), 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

For the six months under review, the Fund posted cumulative total returns of +2.56% based on market price and +2.48% based on net asset value (NAV). In comparison, the Bloomberg Municipal 1-15 Year Index posted a +0.81% 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 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.

Municipal Bond Market Overview

The U.S. and the rest of the world continued to manage the recovery from the COVID-19 pandemic that has caused significant economic and personal hardship throughout the past six months ended September 30, 2021. Fifty-six percent of

the U.S. population had been fully immunized by period-end, but the remaining population were either hesitant to receive the vaccine or did not have ready access to it, stalling vaccination growth. After falling from an all-time high in January 2021, infections fell through the spring and beginning summer months of 2021. However, starting in mid-July 2021, daily new case rates rose throughout the U.S. to levels last seen in February 2021. U.S. state and local authorities were hesitant to return to restrictions, keeping most businesses and schools open, but many extended face-mask requirements. Although most new cases were confined to unvaccinated individuals, there were a growing number of breakthrough infections of the vaccinated, leading the U.S. Food and Drug Administration to authorize booster shots for the elderly and essential workers.

Second quarter 2021 U.S. gross domestic product (GDP) growth disappointed many economists at just 6.7% but, for the first time, overall real GDP exceeded pre-COVID-19 levels from the fourth quarter 2019. Employment improved, driving the unemployment rate to 4.8% in September 2021, down from a peak of 14.8% seen in April 2020. Inflation picked up through the summer months of 2021 as global supply-chain bottlenecks and rising input prices limited output growth that was met with pent-up demand for goods. U.S. political tensions increased over a proposed new government spending bill for infrastructure projects. Additionally, the U.S. Congress did not reach a deal to increase the current debt ceiling which is projected to be exhausted sometime later in 2021, potentially adding to near-term volatility.

The U.S. Federal Reserve (Fed) continued on its path toward tapering its current level of U.S. Treasury (UST) and agency mortgage-backed securities purchases, changing the language of its September 2021 meeting statement to “a moderation in the pace of asset purchases may soon be warranted” so long as economic progress continues broadly as expected. Fed Chair Jerome Powell noted there was unanimous support among Fed participants to conclude tapering by mid-2022. The updated economic projections from participants showed that the Fed remains evenly divided between hiking and holding the federal funds rate steady in 2022. The

 

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 Statement of Investments (SOI). The SOI begins on page 101.

 

           
22             

Semiannual Report

  franklintempleton.com


FRANKLIN LIBERTY FEDERAL INTERMEDIATE TAX-FREE BOND OPPORTUNITIES ETF

 

median projections remain divided between three to four hikes by the end of 2023, followed by another three hikes by the end of 2024. However, the wide dispersion of policy rate forecasts over 2023 and 2024 suggests that there is much less consensus on the amount of rate hikes per year.

Strong demand for municipal (muni) bonds continued throughout the period under review, pushing ratios of 30-year muni bonds versus UST yields in June 2021 to all-time lows. Although these and other maturity ratios have since increased, they remain at historically rich levels. In times of increased UST volatility throughout the six months, muni bond valuations suffered declines only to rally once stability returned to the market. Muni issuers had projected severe budget deficits in 2020 and 2021, but these proved unfounded as consumer spending recovered more quickly than anticipated, leading to higher sales tax collections. Additionally, the U.S. federal government provided $350 billion in relief to muni issuers as part of the fiscal stimulus package passed in March 2021. A strong U.S. housing market also provided support to local and state governments as home price appreciation rates reached historic highs. The U.S. Congress has taken up a number of initiatives that may have an impact on the muni bond market. While the size and composition has yet to be settled on, Congress has been debating large infrastructure bills that could lead to increased issuance of muni bonds. In addition, potential changes to the tax code could increase taxes on wealthy individuals which, in time, could increase demand for tax-exempt muni bonds.

For the six-month period, U.S. fixed income sectors broadly underperformed relative to equities, as measured by the Standard & Poor’s 500® Index, which posted a +9.18% total return for the period.2 Investment-grade muni bonds, as measured by the Bloomberg Municipal Bond Index, posted a +1.15% total return, while USTs, as measured by the Bloomberg U.S. Treasury Index, posted a +1.83% total return, and investment-grade corporate bonds, as measured by the Bloomberg U.S. Corporate Bond Index, posted a +3.54% 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 use a buy-and-hold strategy. This means we generally hold securities in the Fund’s portfolio for income purposes, rather than trading securities for capital gains, 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.

 

Portfolio Composition      
9/30/21      
     % of Total
Investments
 

Special Tax

    45.37%  

Health Care

    13.96%  

Education

    10.22%  

Local

    5.98%  

Transportation

    5.53%  

Industrial Development Revenue and Pollution Control

    5.23%  

Lease

    4.12%  

Utilities

    2.98%  

Housing

    2.80%  

State

    2.03%  

Cash

    0.73%  

Other

    0.62%  

Refunded

    0.43%  

Manager’s Discussion

Due to the positive sloping municipal yield curve, we found value in lower quality securities in a 10-year average maturity range, which allowed us to achieve our objective of maximizing income for our investors. Typically, when interest rates fall, our turnover declines as we maintain exposure to securities that are producing income that exceeds their replacement value in the market. This excess income supports higher distribution rates and reinvestment rates for those investors taking advantage of tax-free compounding. Our turnover increases when rates rise, as opportunities to purchase securities that have the potential to increase income in the portfolios become available. We believe our consistent, disciplined strategy can help our investors achieve high, tax-free income over the long term.

Thank you for your participation in Franklin Liberty Federal Intermediate Tax-Free Bond Opportunities ETF. We look forward to serving your future investment needs.

 

           
franklintempleton.com  

Semiannual Report

             23


FRANKLIN LIBERTY FEDERAL INTERMEDIATE TAX-FREE BOND OPPORTUNITIES ETF

 

 

The foregoing information reflects our analysis, opinions and portfolio holdings as of September 30, 2021, the end of the reporting period. The way we implement our main investment strategies and the resulting portfolio holdings may change depending on factors such as market and economic conditions. These opinions may not be relied upon as investment advice or an offer for a particular security. The information is not a complete analysis of every aspect of any market, state, industry, security or the Fund. Statements of fact are from sources considered reliable, but the investment manager makes no representation or warranty as to their completeness or accuracy. Although historical performance is no guarantee of future results, these insights may help you understand our investment management philosophy.

 

           
24             

Semiannual Report

  franklintempleton.com


FRANKLIN LIBERTY FEDERAL INTERMEDIATE TAX-FREE BOND OPPORTUNITIES ETF

 

Performance Summary as of September 30, 2021

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 tables do 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. The price used to calculate market return (Market Price) is determined by using the midpoint between the highest bid and the lowest offer on the primary stock exchange on which shares of a fund are listed for trading, as of the time that such fund’s NAV is calculated. 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 9/30/211

 

     Cumulative Total Return2      Average Annual Total Return2  
      Based on
NAV3
    

Based on

market price4

     Based on
NAV3
    

Based on

market price4

 

6-Month

     +2.48%        +2.56%        +2.48%        +2.56%  

1-Year

     +6.57%        +6.73%        +6.57%        +6.73%  

3-Year

     +18.19%        +18.23%        +5.73%        +5.74%  

Since Inception (8/31/17)

     +17.17%        +17.25%        +3.96%        +3.98%  

 

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

2.38%

     1.71%        1.20%%        2.89%        2.03%  

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 26 for Performance Summary footnotes.

 

           
franklintempleton.com  

Semiannual Report

             25


FRANKLIN LIBERTY FEDERAL INTERMEDIATE TAX-FREE BOND OPPORTUNITIES ETF

PERFORMANCE SUMMARY

 

Distributions (4/1/21–9/30/21)

Net Investment
Income

$0.312632

Total Annual Operating Expenses8

With Fee Waiver    Without Fee Waiver  

  0.30%

     1.01%  

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. Puerto Rico municipal bonds have been impacted by recent adverse economic and market changes, which may cause the Fund’s share price to decline. 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. 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.

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 Fund has a fee waiver and/or expense reimbursement contractually guaranteed through 7/31/22. Fund investment results reflect the expense reduction; without this reduction, the results would have been lower.

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 9/30/21.

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 2021 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. In periods of market volatility, assets may decline significantly, causing total annual Fund operating expenses to become higher than the figures shown.

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

 

           
26             

Semiannual Report

  franklintempleton.com


FRANKLIN LIBERTY FEDERAL INTERMEDIATE TAX-FREE BOND OPPORTUNITIES 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 4/1/21
    Ending
Account
Value 9/30/21
    Expenses
Paid During
Period
4/1/21–9/30/211,2
    Ending
Account
Value 9/30/21
    Expenses
Paid During
Period
4/1/21–9/30/211,2
    Net Annualized
Expense Ratio2
 
  $1,000.00     $ 1,024.80     $ 1.52     $ 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.

2. Reflects expenses after fee waivers and expense reimbursements.

 

           
franklintempleton.com  

Semiannual Report

             27


Franklin Liberty Federal Tax-Free Bond ETF

 

This semiannual report for Franklin Liberty Federal Tax-Free Bond ETF covers the period ended September 30, 2021.

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 The Fund seeks to maintain a dollar-weighted average portfolio maturity (the time in which the debt must be repaid) of five to 15 years, and only buys 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

For the six months under review, the Fund posted cumulative total returns of +1.47% based on market price and +1.43% based on net asset value (NAV). In comparison, the Bloomberg Municipal Bond Index posted a +1.15% 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 31.

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

The U.S. and the rest of the world continued to manage the recovery from the COVID-19 pandemic that has caused significant economic and personal hardship throughout the past six months ended September 30, 2021. Fifty-six percent of the U.S. population had been fully immunized by period-end, but the remaining population were either hesitant to receive

the vaccine or did not have ready access to it, stalling vaccination growth. After falling from an all-time high in January 2021, infections fell through the spring and beginning summer months of 2021. However, starting in mid-July 2021, daily new case rates rose throughout the U.S. to levels last seen in February 2021. U.S. state and local authorities were hesitant to return to restrictions, keeping most businesses and schools open, but many extended face-mask requirements. Although most new cases were confined to unvaccinated individuals, there were a growing number of breakthrough infections of the vaccinated, leading the U.S. Food and Drug Administration to authorize booster shots for the elderly and essential workers.

Second quarter 2021 U.S. gross domestic product (GDP) growth disappointed many economists at just 6.7% but, for the first time, overall real GDP exceeded pre-COVID-19 levels from the fourth quarter 2019. Employment improved, driving the unemployment rate to 4.8% in September 2021, down from a peak of 14.8% seen in April 2020. Inflation picked up through the summer months of 2021 as global supply-chain bottlenecks and rising input prices limited output growth that was met with pent-up demand for goods. U.S. political tensions increased over a proposed new government spending bill for infrastructure projects. Additionally, the U.S. Congress did not reach a deal to increase the current debt ceiling which is projected to be exhausted sometime later in 2021, potentially adding to near-term volatility.

The U.S. Federal Reserve (Fed) continued on its path toward tapering its current level of U.S. Treasury (UST) and agency mortgage-backed securities purchases, changing the language of its September 2021 meeting statement to “a moderation in the pace of asset purchases may soon be warranted” so long as economic progress continues broadly as expected. Fed Chair Jerome Powell noted there was unanimous support among Fed participants to conclude tapering by mid-2022. The updated economic projections from participants showed that the Fed remains evenly divided between hiking and holding the federal funds rate steady in 2022. The median projections remain divided between three to four

 

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 Statement of Investments (SOI). The SOI begins on page 113.

 

           
28             

Semiannual Report

  franklintempleton.com


FRANKLIN LIBERTY FEDERAL TAX-FREE BOND ETF

 

hikes by the end of 2023, followed by another three hikes by the end of 2024. However, the wide dispersion of policy rate forecasts over 2023 and 2024 suggests that there is much less consensus on the amount of rate hikes per year.

Strong demand for municipal (muni) bonds continued throughout the period under review, pushing ratios of 30-year muni bonds versus UST yields in June 2021 to all-time lows. Although these and other maturity ratios have since increased, they remain at historically rich levels. In times of increased UST volatility throughout the six months, muni bond valuations suffered declines only to rally once stability returned to the market. Muni issuers had projected severe budget deficits in 2020 and 2021, but these proved unfounded as consumer spending recovered more quickly than anticipated, leading to higher sales tax collections. Additionally, the U.S. federal government provided $350 billion in relief to muni issuers as part of the fiscal stimulus package passed in March 2021. A strong U.S. housing market also provided support to local and state governments as home price appreciation rates reached historic highs. The U.S. Congress has taken up a number of initiatives that may have an impact on the muni bond market. While the size and composition has yet to be settled on, Congress has been debating large infrastructure bills that could lead to increased issuance of muni bonds. In addition, potential changes to the tax code could increase taxes on wealthy individuals which, in time, could increase demand for tax-exempt muni bonds.

For the six-month period, U.S. fixed income sectors broadly underperformed relative to equities, as measured by the Standard & Poor’s 500® Index, which posted a +9.18% total return for the period.2 Investment-grade muni bonds, as measured by the Bloomberg Municipal Bond Index, posted a +1.15% total return, while USTs, as measured by the Bloomberg U.S. Treasury Index, posted a +1.83% total return, and investment-grade corporate bonds, as measured by the Bloomberg U.S. Corporate Bond Index, posted a +3.54% 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 use a buy-and-hold strategy. This means we generally hold securities in the Fund’s portfolio for income purposes, rather than trading securities for capital gains, although we may sell a security at any time if we believe it could help the Fund meet its goal. The Fund is an actively managed exchange-traded fund (ETF) that does not seek to replicate the performance of a specified index.

Portfolio Composition      
9/30/21      
     % of Total
Investments
 

Industrial Development Revenue and Pollution Control

    16.36%  

Local

    12.59%  

Health Care

    10.74%  

Utilities

    10.60%  

Lease

    9.40%  

Special Tax

    9.07%  

Education

    8.91%  

Transportation

    8.72%  

State

    8.01%  

Other

    2.87%  

Housing

    2.33%  

Cash

    0.31%  

Refunded

    0.10%  

Manager’s Discussion

Due to the positive sloping municipal yield curve, we found value in higher quality securities in a 10-year average maturity range, which allowed us to achieve our objective of maximizing income for our investors. Typically, when interest rates fall, our turnover declines as we maintain exposure to securities that are producing income that exceeds their replacement value in the market. This excess income supports higher distribution rates and reinvestment rates for those investors taking advantage of tax-free compounding. Our turnover increases when rates rise, as opportunities to purchase securities that have the potential to increase income in the portfolios become available. We believe our consistent, disciplined strategy can help our investors achieve high, tax-free income over the long term.

Thank you for your participation in Franklin Liberty Federal Tax-Free Bond ETF. We look forward to serving your future investment needs.

 

           
franklintempleton.com  

Semiannual Report

             29


FRANKLIN LIBERTY FEDERAL TAX-FREE BOND ETF

 

 

The foregoing information reflects our analysis, opinions and portfolio holdings as of September 30, 2021, the end of the reporting period. The way we implement our main investment strategies and the resulting portfolio holdings may change depending on factors such as market and economic conditions. These opinions may not be relied upon as investment advice or an offer for a particular security. The information is not a complete analysis of every aspect of any market, state, industry, security or the Fund. Statements of fact are from sources considered reliable, but the investment manager makes no representation or warranty as to their completeness or accuracy. Although historical performance is no guarantee of future results, these insights may help you understand our investment management philosophy.

 

           
30             

Semiannual Report

  franklintempleton.com


FRANKLIN LIBERTY FEDERAL TAX-FREE BOND ETF

 

Performance Summary as of September 30, 2021

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 tables do 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. The price used to calculate market return (Market Price) is determined by using the midpoint between the highest bid and the lowest offer on the primary stock exchange on which shares of a fund are listed for trading, as of the time that such fund’s NAV is calculated. 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 9/30/211

 

     Cumulative Total Return2      Average Annual Total Return2  
      Based on
NAV3
    

Based on

market price4

     Based on
NAV3
    

Based on

market price4

 

6-Month

     +1.43%        +1.47%        +1.43%        +1.47%  

1-Year

     +2.51%        +2.51%        +2.51%        +2.51%  

3-Year

     +20.21%        +20.19%        +6.33%        +6.32%  

Since Inception (8/31/17)

     +18.44%        +18.51%        +4.23%        +4.25%  

 

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

1.80%

     0.91%        0.52%        1.54%        0.88%  

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 32 for Performance Summary footnotes.

 

           
franklintempleton.com  

Semiannual Report

             31


FRANKLIN LIBERTY FEDERAL TAX-FREE BOND ETF

PERFORMANCE SUMMARY

 

Distributions (4/1/21–9/30/21)

Net Investment
Income

$0.235589

Total Annual Operating Expenses8

With Fee Waiver    Without Fee Waiver  

  0.30%

     0.78%  

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. Puerto Rico municipal bonds have been impacted by recent adverse economic and market changes, which may cause the Fund’s share price to decline. 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. 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.

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 Fund has a fee waiver and/or expense reimbursement contractually guaranteed through 7/31/22. Fund investment results reflect the expense reduction; without this reduction, the results would have been lower.

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 9/30/21.

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 2021 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. In periods of market volatility, assets may decline significantly, causing total annual Fund operating expenses to become higher than the figures shown.

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

 

           
32             

Semiannual Report

  franklintempleton.com


FRANKLIN LIBERTY FEDERAL TAX-FREE 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 x $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 4/1/21
    Ending
Account
Value 9/30/21
    Expenses
Paid During
Period
4/1/21–9/30/211,2
    Ending
Account
Value 9/30/21
    Expenses
Paid During
Period
4/1/21–9/30/211,2
    Net Annualized
Expense Ratio2
 
  $1,000.00     $ 1,014.30     $ 1.51     $ 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.

2. Reflects expenses after fee waivers and expense reimbursements.

 

           
franklintempleton.com  

Semiannual Report

             33


Franklin Liberty High Yield Corporate ETF

 

This semiannual report for Franklin Liberty High Yield Corporate ETF covers the period ended September 30, 2021.

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 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 fixed or floating-rate corporate loans and corporate debt securities.

Performance Overview

During the six-month period, the Fund posted cumulative total returns of +3.16% based on market price and +3.52% based on net asset value (NAV). In comparison, the ICE BofA U.S. High Yield Constrained Index posted a +3.74% 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 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.

 

Portfolio Composition  
9/30/21       
      % of Total
Net Assets
 

Corporate Bonds & Notes

     99.99%  

Short-Term Investments & Other Net Assets

     0.1%  

Economic and Market Overview

The U.S. bond market, as measured by the Bloomberg U.S. Aggregate Bond Index, posted a +1.88% total return for the six months ended September 30, 2021.1 The inflation rate was elevated during the period amid high demand and supply-chain bottlenecks, with the price pressures coming principally from the areas most impacted by shutdowns related to the novel coronavirus (COVID-19) pandemic, such as used vehicles, airfares, semiconductors and energy. However, investors’ inflation expectations were relatively stable,

and a widely-used measure indicated that markets anticipated inflation will moderate. Longer-term bonds generally outperformed shorter-term bonds, as the yield curve (a measure of the difference between long-term and short-term bond yields) flattened slightly.

In an effort to support the economy, the U.S. Federal Reserve (Fed) kept the federal funds target rate at a record-low range of 0.00%–0.25%. The Fed also maintained quantitative easing measures aimed at ensuring credit flows to borrowers and supporting credit markets with open-ended U.S. Treasury and mortgage bond purchasing. In its September 2021 meeting statement, the Fed indicated that it soon plans to reduce its purchases of U.S. Treasury and mortgage-backed securities but declined to provide a timetable. The Fed also maintained that it views inflation as partially transitory, and that further employment progress was needed before the Fed would consider raising the range for the federal funds target rate.

U.S. Treasury bonds, as measured by the Bloomberg U.S. Treasury Index, posted a +1.83% total return for the six-month period.1 The 10-year U.S. Treasury yield (which moves inversely to price) declined amid an increase in novel coronavirus (COVID-19) cases as the Delta variant spread. Mortgage-backed securities (MBS), as measured by the Bloomberg MBS Index, posted a +0.43% total return for the period, helped by ongoing Fed support.1

Corporate bonds followed a similar trajectory as U.S. Treasuries, but benefited from a continued decline in spreads (the difference in yields between government and corporate bonds) amid an increase in investors’ appetite for risk. High-yield corporate bonds, as represented by the Bloomberg U.S. Corporate High Yield Bond Index, posted a +3.65% total return, while investment-grade corporate bonds, as represented by the Bloomberg U.S. Corporate Bond Index, posted a +3.54% total return.1

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

 

1. 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 Statement of Investments (SOI). The SOI begins on page 121.

 

           
34             

Semiannual Report

  franklintempleton.com


FRANKLIN LIBERTY HIGH YIELD CORPORATE ETF

 

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. 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.

 

Top 10 Sector/Industries       
9/30/21       
     

% of Total

Net Assets

 

Energy

     15.0%  

Materials

     13.3%  

Media & Entertainment

     12.2%  

Diversified Financials

     6.5%  

Utilities

     5.7%  

Pharmaceuticals, Biotechnology & Life Sciences

     5.7%  

Commercial & Professional Services

     5.5%  

Consumer Services

     4.8%  

Automobiles & Components

     4.8%  

Capital Goods

     4.7%  
Top 10 Holdings       
9/30/21       
Company
Sector/Industry
  

% of Total

Net Assets

 

TransDigm Inc., senior secured note, 144A, 3/15/2026

Capital Goods

     1.0%  

Bausch Health Americas Inc., senior note, 144A, 4/1/2026

Pharmaceuticals, Biotechnology & Life Sciences

     1.0%  

Cheniere Energy Inc., senior secured, 10/15/2028

Energy

     1.0%  

CSC Holdings LLC senior note, 144A, 4/1/2028

Media & Entertainment

     1.0%  

Emergent BioSolutions Inc., senior note, 144A, 8/15/2028

Pharmaceuticals, Biotechnology & Life Sciences

     1.0%  

ATS Automation Tooling Systems Inc., senior note, 144A, 12/15/2028

Capital Goods

     1.0%  

Ashton Woods USA LLC / Ashton Woods Finance Co., senior note, 144A, 4/1/2030

Consumer Durables & Apparel

     0.9%  

Par Pharmaceutical Inc., senior secured note, 144A, 4/1/2027

Pharmaceuticals, Biotechnology & Life Sciences

     0.9%  

Jaguar Land Rover Automotive PLC, 144A, 7/15/2029

Automobiles & Components

     0.9%  

Commercial Metals Co., senior bond, 2/15/2031

Materials

     0.9%  

Manager’s Discussion

While “reflation,” meaning a return to growth, was the key driver for markets in the first quarter of 2021, “inflation” and commensurate risks of higher commodity prices took center stage over the summer and into the fall. Central bankers initially had assured the market that the recent rise in inflation measures would prove temporary, and market consensus had largely accepted this optimistic view. More recently though, the Fed acknowledged that inflation risks are skewed to the upside. As a result, markets have debated the growth and inflation outlook with equity market returns reflecting potential for positive growth, while Treasury markets turned more cautious on the growth outlook towards the end of second quarter, as reflected in lower 10-year U.S. Treasury (UST) yields. Amid the COVID-19 Delta variant, persistent inflationary pressures from supply chain woes and renewed focus on the timing of a Fed taper and interest rate hikes, UST yields generally trended higher across the curve at the end of September (on a year-to-date basis).

Based on benchmark index data, high-yield (HY) spreads generally trended tighter during the six-month period under

 

           
franklintempleton.com  

Semiannual Report

             35


FRANKLIN LIBERTY HIGH YIELD CORPORATE ETF

 

review. Most segments of the HY market posted positive absolute returns for the performance period. CCC rated bonds returned 4.27%, compared to returns of 3.98% and 2.78% for BB and B rated segments, respectively. From an industry standpoint, energy stood out as a key performer, followed by chemicals and food/tobacco.

Overall, the Fund slightly trailed the index performance for the period under review, while outperforming passive HY ETFs.

The Fund’s industry allocation contributed to relative performance for the period, led by underweighted positions in the media cable and wireless industries and overweighted positions in the energy segment. Conversely, overweighted positions in the health care, utility, packaging and industrial segments detracted from results.

The Fund’s security selection hampered performance, particularly in the technology, gaming and utility industries. Conversely, selection in industrial, retail and media cable segments contributed to results.

The Fund’s ratings-quality tilt hindered performance, as the Fund had minimal exposure to distressed securities, which outperformed the overall market by a large margin amid the ongoing economic recovery. The Fund’s yield-curve positioning also detracted from performance during the six-month period under review.

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 Liberty 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, 2021, 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.

 

           
36             

Semiannual Report

  franklintempleton.com

CFA® is a trademark owned by CFA Institute.


FRANKLIN LIBERTY HIGH YIELD CORPORATE ETF

 

Performance Summary as of September 30, 2021

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 tables do 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. The price used to calculate market return (Market Price) is determined by using the midpoint between the highest bid and the lowest offer on the primary stock exchange on which shares of a fund are listed for trading, as of the time that such fund’s NAV is calculated. 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 9/30/211

 

     Cumulative Total Return2      Average Annual Total Return2  
      Based on
NAV3
    

Based on

market price4

     Based on
NAV3
    

Based on

market price4

 

6-Month

     +3.52%        +3.16%        +3.52%        +3.16%  

1-Year

     +9.98%        +9.71%        +9.98%        +9.71%  

3-Year

     +24.53%        +24.52%        +7.59%        +7.58%  

Since Inception (5/30/18)

     +28.59%        +28.59%        +7.83%        +7.83%  

 

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

5.38%

     3.76%        3.58%  

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 38 for Performance Summary footnotes.

 

           
franklintempleton.com  

Semiannual Report

             37


FRANKLIN LIBERTY HIGH YIELD CORPORATE ETF

PERFORMANCE SUMMARY

 

Distributions (4/1/21–9/30/21)

Net Investment
Income

$0.655142

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. 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.

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 Fund has a fee waiver and/or expense reimbursement contractually guaranteed through 7/31/22. Fund investment results reflect the expense reduction; without this reduction, the results would have been lower.

2. Total return calculations represent the cumulative and average annual changes in value of an investment over the period 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 9/30/21.

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 effective as of October 1, 2021 (as stated in the Fund’s prospectus supplement dated October 1, 2021) and may differ from the expense ratios disclosed in the Your Fund’s Expenses and Financial Highlights section in this report. In periods of market volatility, assets may decline significantly, causing total annual Fund operating expenses to become higher than the figures shown.

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

 

           
38             

Semiannual Report

  franklintempleton.com


FRANKLIN LIBERTY 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 ETFs. 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 4/1/21
    Ending
Account
Value 9/30/21
    Expenses
Paid During
Period
4/1/21–9/30/211,2
    Ending
Account
Value 9/30/21
    Expenses
Paid During
Period
4/1/21–9/30/211,2
    Net Annualized
Expense Ratio2
 
  $1,000.00     $ 1,035.20     $ 2.04     $ 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.

2. Reflects expenses after fee waivers and expense reimbursements.

 

           
franklintempleton.com  

Semiannual Report

             39


Franklin Liberty International Aggregate Bond ETF

 

This semiannual report for Franklin Liberty International Aggregate Bond ETF covers the period ended September 30, 2021.

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.

 

Geographic Composition  
9/30/21       
     

% of Total

Net Assets

 

Europe

     42.7%  

Asia

     30.6%  

North America

     9.5%  

Supranationals

     2.1%  

Australia & New Zealand

     1.9%  

Middle East & Africa

     1.1%  

Latin America & Caribbean

     0.1%  

Short-Term Investments & Other Net Assets

     11.8%  

Performance Overview

During the six-month period, the Fund posted cumulative total returns of +0.24% based on market price and +0.48% based on net asset value (NAV). In comparison, the Fund’s benchmark, the Bloomberg Global Aggregate Bond ex-USD Index (100% Hedged to USD), posted a +0.44% cumulative total return.1 You can find more of the Fund’s performance data in the Performance Summary beginning on page 43.

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.

Portfolio Composition  
9/30/21       
     

% of Total

Net Assets

 

Foreign Government and Agency Securities

     79.9%  

Corporate Bonds & Notes

     5.7%  

U.S. Government & Agency Securities

     2.6%  

Short-Term Investments & Other Net Assets

     11.8%  

Economic and Market Overview

The U.S. bond market, as measured by the Bloomberg U.S. Aggregate Bond Index, posted a +1.88% total return for the six months ended September 30, 2021.1 The inflation rate was elevated during the period amid high demand and supply-chain bottlenecks, with the price pressures coming principally from the areas most impacted by shutdowns related to the novel coronavirus (COVID-19) pandemic, such as used vehicles, airfares, semiconductors and energy. However, investors’ inflation expectations were relatively stable, and a widely-used measure indicated that markets anticipated inflation will moderate. Longer-term bonds generally outperformed shorter-term bonds, as the yield curve (a measure of the difference between long-term and short-term bond yields) flattened slightly.

In an effort to support the economy, the U.S. Federal Reserve (Fed) kept the federal funds target rate at a record-low range of 0.00%–0.25%. The Fed also maintained quantitative easing measures aimed at ensuring credit flows to borrowers and supporting credit markets with open-ended U.S. Treasury and mortgage bond purchasing. In its September 2021 meeting statement, the Fed indicated that it soon plans to reduce its purchases of U.S. Treasury and mortgage-backed securities but declined to provide a timetable. The Fed also maintained that it views inflation as partially transitory, and that further employment progress was needed before the Fed would consider raising the range for the federal funds target rate.

U.S. Treasury bonds, as measured by the Bloomberg U.S. Treasury Index, posted a +1.83% total return for the six-month period.1 The 10-year U.S. Treasury yield (which moves inversely to price) declined amid an increase in novel

 

1. 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 Statement of Investments (SOI). The SOI begins on page 129.

 

           
40             

Semiannual Report

  franklintempleton.com


FRANKLIN LIBERTY INTERNATIONAL AGGREGATE BOND ETF

 

coronavirus (COVID-19) cases as the Delta variant spread. Mortgage-backed securities (MBS), as measured by the Bloomberg MBS Index, posted a +0.43% total return for the period, helped by ongoing Fed support.1

Corporate bonds followed a similar trajectory as U.S. Treasuries, but benefited from a continued decline in spreads (the difference in yields between government and corporate bonds) amid an increase in investors’ appetite for risk. High-yield corporate bonds, as represented by the Bloomberg U.S. Corporate High Yield Bond Index, posted a +3.65% total return, while investment-grade corporate bonds, as represented by the Bloomberg U.S. Corporate Bond Index, posted a +3.54% total return.1

Global aggregate bond markets, as measured by the Bloomberg Global Aggregate Bond ex-USD Index (100% Hedged to USD), posted a +0.44% total return over the six-month review period ended September 30, 2021.1 In April 2021, the U.S. Federal Reserve (Fed) Chair Jay Powell stated that the rollout of vaccinations, in tandem with unprecedented fiscal support, had improved economic activity and employment. U.S. data released in May 2021 were largely positive, although strong inflation data led to significant speculation as to whether the Fed might begin to reassess its policies. Even so, the central bank made no changes to its stimulus measures in its June 2021 meeting, although it admitted that rising inflation had become a matter for concern. The Fed also kept its policies unchanged in July 2021, stating that the U.S. economy had made progress towards reaching its goals of maximum employment and price stability. However, concerns remained about rising inflation, with data continuing to surprise on the upside. At the annual Jackson Hole Economic Symposium in August 2021, Fed Chair Jerome Powell stated that there could be some reduction in the pace of asset purchases at some point this year. At its September 2021 meeting, the Fed indicated that it may begin tapering asset purchases earlier than previously expected, a decision that came after the Federal Open Market Committee revised U.S. growth and inflation projections upwards for 2022. Against this backdrop, benchmark U.S. Treasury yields were down over the six-month period.

In Europe, the European Central Bank (ECB) decided in April 2021 to keep its policy unchanged, although figures released later in the month showed that the region had fallen into a double-dip recession. In May 2021, however, there were encouraging signs that the region was bouncing back. Fears that rising inflation could threaten an economic recovery were also downplayed mid-May 2021 by ECB President Christine Lagarde, while several ECB policymakers emphasized that it was too soon to rein in the central bank’s expansionary monetary policies. Indeed, the ECB maintained its policies at its

June 2021 meeting, notwithstanding further strong economic data. The ECB subsequently raised both its growth and inflation forecasts for 2021, although it stipulated that it expected the latter to remain below its target for the foreseeable future. The ECB announced in July 2021 that it would shift its inflation target from “below but close to 2%” to a definitive 2%. Economic data remained upbeat, with the eurozone economy moving out of recession in the second three months of 2021. In September 2021, the ECB announced that it would begin moderating its emergency bond purchases over the fourth quarter. Nonetheless, concerns remained about high levels of inflation. In this environment, benchmark yields on German Bunds rose slightly over the period, though they remained in negative territory at the end of September 2021.

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. 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 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

 

           
franklintempleton.com  

Semiannual Report

             41


FRANKLIN LIBERTY INTERNATIONAL AGGREGATE BOND ETF

 

under these instruments. The results of such transactions may represent, from time to time, a large component of the Fund’s investment returns. The use of these derivative transactions may allow the fund to obtain net long or net negative (short) exposure to selected currencies. The Fund may also enter into various other transactions involving derivatives, including interest rate/bond futures contracts and interest rate swap agreements. 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 local market allocation bolstered relative returns, notably exposures to the U.S. and U.K. markets. However, an underweighted allocation to the outperforming Chinese market and an overweighted position in the underperforming eurozone market diluted this to some degree.

In contrast, the Fund’s currency positioning detracted from relative results, particularly an underweighted allocation to the Canadian dollar.

The Fund’s duration and yield-curve positioning in Chinese bonds also hindered relative performance.

The Fund’s sector allocation weighed on relative returns, while security selection had a broadly neutral impact. An underweighted allocation to eurozone corporate investment-grade financial issues and an overweighted position in Canadian government bonds were detrimental to relative results. Conversely, selection within Italian sovereign issues and Japanese government debt added relative value.

In terms of derivative use, foreign 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 to the Fund’s relative performance, as the U.S. dollar rose against most other major currencies.

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

John Beck

Sonal Desai, Ph.D.

David Zahn, CFA

Patrick Klein, Ph.D.

Portfolio Management Team

 

The foregoing information reflects our analysis, opinions and portfolio holdings as of September 30, 2021, 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.

 

           
42             

Semiannual Report

  franklintempleton.com


FRANKLIN LIBERTY INTERNATIONAL AGGREGATE BOND ETF

 

Performance Summary as of September 30, 2021

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 tables do 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. The price used to calculate market return (Market Price) is determined by using the midpoint between the highest bid and the lowest offer on the primary stock exchange on which shares of a fund are listed for trading, as of the time that such fund’s NAV is calculated. 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 9/30/211

 

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

6-Month

     +0.48%        +0.24%        +0.48%        +0.24%  

1-Year

     -0.75%        -0.51%        -0.75%        -0.51%  

3-Year

     +7.37%        +7.97%        +2.40%        +2.59%  

Since Inception (5/30/18)

     +5.31%        +5.34%        +1.56%        +1.57%  

 

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

1.02%

     0.23%        -0.05%  

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 44 for Performance Summary footnotes.

 

           
franklintempleton.com  

Semiannual Report

             43


FRANKLIN LIBERTY INTERNATIONAL AGGREGATE BOND ETF

PERFORMANCE SUMMARY

 

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. 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.

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 Fund has a fee waiver and/or expense reimbursement contractually guaranteed through 7/31/22. Fund investment results reflect the expense reduction; without this reduction, the results would have been lower.

2. Total return calculations represent the cumulative and average annual changes in value of an investment over the period 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 9/30/21.

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 effective as of October 1, 2021 (as stated in the Fund’s prospectus supplement dated October 1, 2021) and may differ from the expense ratios disclosed in the Your Fund’s Expenses and Financial Highlights section in this report. In periods of market volatility, assets may decline significantly, causing total annual Fund operating expenses to become higher than the figures shown.

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

 

           
44             

Semiannual Report

  franklintempleton.com


FRANKLIN LIBERTY 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 x $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 4/1/21
    Ending
Account
Value 9/30/21
    Expenses
Paid During
Period
4/1/21–9/30/211,2
    Ending
Account
Value 9/30/21
    Expenses
Paid During
Period
4/1/21–9/30/211,2
    Net Annualized
Expense Ratio2
 
  $1,000.00     $ 1,004.80     $ 1.26     $ 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.

2. Reflects expenses after fee waivers and expense reimbursements.

 

           
franklintempleton.com  

Semiannual Report

             45


Franklin Liberty Investment Grade Corporate ETF

 

This semiannual report for Franklin Liberty Investment Grade Corporate ETF covers the period ended September 30, 2021.

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 +3.13% based on market price and +3.61% based on net asset value (NAV).1 In comparison, the Bloomberg U.S. Corporate Investment Grade Index posted a +3.54% 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 49.

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

 

Top 10 Sectors/Industries  
9/30/21       
      % of Total
Net Assets
 

Banks

     22.6%  

Electric Utilities

     9.3%  

Oil, Gas & Consumable Fuels

     6.4%  

Diversified Telecommunication Services

     4.8%  

Health Care Providers & Services

     4.4%  

Capital Markets

     3.6%  

Aerospace & Defense

     3.4%  

Hotels, Restaurants & Leisure

     2.9%  

Pharmaceuticals

     2.8%  

Insurance

     2.8%  

Economic and Market Overview

The U.S. bond market, as measured by the Bloomberg U.S. Aggregate Bond Index, posted a +1.88% total return for the six months ended September 30, 2021.1 The inflation rate was elevated during the period amid high demand and supply-chain bottlenecks, with the price pressures coming principally from the areas most impacted by shutdowns related to the novel coronavirus (COVID-19) pandemic, such as used vehicles, airfares, semiconductors and energy. However, investors’ inflation expectations were relatively stable, and a widely-used measure indicated that markets anticipated inflation will moderate. Longer-term bonds generally outperformed shorter-term bonds, as the yield curve (a measure of the difference between long-term and short-term bond yields) flattened slightly.

In an effort to support the economy, the U.S. Federal Reserve (Fed) kept the federal funds target rate at a record-low range of 0.00%–0.25%. The Fed also maintained quantitative easing measures aimed at ensuring credit flows to borrowers and supporting credit markets with open-ended U.S. Treasury and mortgage bond purchasing. In its September 2021 meeting statement, the Fed indicated that it soon plans to reduce its purchases of U.S. Treasury and mortgage-backed securities but declined to provide a timetable. The Fed also maintained that it views inflation as partially transitory, and that further employment progress was needed before the Fed would consider raising the range for the federal funds target rate.

U.S. Treasury bonds, as measured by the Bloomberg U.S. Treasury Index, posted a +1.83% total return for the six-month period.1 The 10-year U.S. Treasury yield (which moves inversely to price) declined amid an increase in novel coronavirus (COVID-19) cases as the Delta variant spread. Mortgage-backed securities (MBS), as measured by the Bloomberg MBS Index, posted a +0.43% total return for the period, helped by ongoing Fed support.1

Corporate bonds followed a similar trajectory as U.S. Treasuries, but benefited from a continued decline in spreads (the difference in yields between government and corporate bonds) amid an increase in investors’ appetite for risk. High-yield corporate bonds, as represented by the Bloomberg U.S.

 

1. 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 Statement of Investments (SOI). The SOI begins on page 134.

 

           
46             

Semiannual Report

  franklintempleton.com


FRANKLIN LIBERTY INVESTMENT GRADE CORPORATE ETF

 

Corporate High Yield Bond Index, posted a +3.65% total return, while investment-grade corporate bonds, as represented by the Bloomberg U.S. Corporate Bond Index, posted a +3.54% total return.1

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 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  
9/30/21       
Issue/Issuer    % of Total
Net Assets
 

HSBC Holdings PLC, senior note, FRN thereafter, 1.645%, 4/18/2026

     1.6%  

Verizon Communications Inc., senior bond, 3.40%, 3/22/2041

     1.6%  

Enel Finance International NV, senior note

     1.4%  

Delta Air Lines Inc./SkyMiles IP Ltd., first lien, senior secured, 144A, 4.50%, 10/20/2025

     1.3%  

Bank of America Corp., Senior unsecured, senior unsecured note, sub. bond, 4.183%, 11/25/2027

     1.3%  

Credit Agricole SA, subordinated, 144A, 4.375%, 3/17/25

     1.3%  

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

     1.3%  

BNP Paribas SA, senior note, 144A, 4.705% to 1/10/24, FRN thereafter,1/10/25

     1.2%  

Tencent Holdings Ltd., senior note, 144A, 3.595%, 1/19/28

     1.2%  

Imperial Brands Finance PLC, senior bond, 144A, senior note, 144A, 4.25%, 7/21/2025

     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 (IG) corporate bonds performed well for most of the six months under review, helped by lower U.S. Treasury yields and mostly stable corporate bond spreads.

The Fund outperformed its benchmark for the six months under review.

The Fund’s overweighted allocation to BBB rated bonds and its underweighted allocation to A rated bonds were the main contributors to its outperformance, relative to the benchmark. Among BBB rated bonds, for example, those of Italian utility Enel Finance International, retailer CVS Health and aerospace company Northrop Grumman led the way.

Our selection of bonds within industry sectors also contributed to relative performance. This was mainly the case among electrical utilities, but also within the non-cyclical consumer sector and in the transport industry.

Our overweighted allocation to bonds in the energy sector and in consumer non-cyclicals, overall, contributed to relative performance as well.

Duration and yield curve positioning was a modest positive, too, although the Fund’s duration remained close to the benchmark’s duration during the entire review period.

The Fund primarily held only cash bonds during the period. The Fund also used interest rate futures contracts to manage duration exposure.

Thank you for your participation in Franklin Liberty 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

 

           
franklintempleton.com  

Semiannual Report

             47


FRANKLIN LIBERTY INVESTMENT GRADE CORPORATE ETF

 

 

The foregoing information reflects our analysis, opinions and portfolio holdings as of September 30, 2021, 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.

 

           
48             

Semiannual Report

  franklintempleton.com


FRANKLIN LIBERTY INVESTMENT GRADE CORPORATE ETF

 

Performance Summary as of September 30, 2021

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 tables do 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. The price used to calculate market return (Market Price) is determined by using the midpoint between the highest bid and the lowest offer on the primary stock exchange on which shares of a fund are listed for trading, as of the time that such fund’s NAV is calculated. 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 9/30/211

 

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

6-Month

     +3.61%        +3.13%        +3.61%        +3.13%  

1-Year

     +1.36%        +1.13%        +1.36%        +1.13%  

3-Year

     +23.04%        +22.71%        +7.16%        +7.06%  

Since Inception (10/3/16)

     +23.83%        +23.43%        +4.37%        +4.31%  

 

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

2.84%

     1.93%        1.79%  

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 50 for Performance Summary footnotes.

 

           
franklintempleton.com  

Semiannual Report

             49


FRANKLIN LIBERTY INVESTMENT GRADE CORPORATE ETF

PERFORMANCE SUMMARY

 

Distributions (4/1/219/30/21)

Net Investment

Income

$0.359230

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. 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.

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 Fund has a fee waiver and/or expense reimbursement contractually guaranteed through 7/31/22. Fund investment results reflect the expense reduction; without this reduction, the results would have been lower.

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 9/30/21.

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 effective as of October 1, 2021 (as stated in the Fund’s prospectus supplement dated October 1, 2021) and may differ from the expense ratios disclosed in the Your Fund’s Expenses and Financial Highlights section in this report. In periods of market volatility, assets may decline significantly, causing total annual Fund operating expenses to become higher than the figures shown.

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

 

           
50             

Semiannual Report

  franklintempleton.com


FRANKLIN LIBERTY 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 x $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 4/1/21
    Ending
Account
Value 9/30/21
    Expenses
Paid During
Period
4/1/21–9/30/211,2
    Ending
Account
Value 9/30/21
    Expenses
Paid During
Period
4/1/21–9/30/211,2
    Net Annualized
Expense Ratio2
 
  $1,000.00     $ 1,036.10     $ 1.79     $ 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.

2. Reflects expenses after fee waivers and expense reimbursements.

 

           
franklintempleton.com  

Semiannual Report

             51


Franklin Liberty Senior Loan ETF

 

This semiannual report for Franklin Liberty Senior Loan ETF covers the period ended September 30, 2021.

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 invests at least 80% of its net assets in senior loans and investments that provide exposure to senior loans.

Performance Overview

During the six-month period, the Fund posted cumulative total returns of +2.56% based on market price and +2.32% based on net asset value (NAV). In comparison, the Fund’s benchmark, the S&P/LSTA U.S. Leveraged Loan 100 Index, posted a +2.12% 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 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.

 

Portfolio Composition  
9/30/21       
      % of Total
Net Assets
 

Senior Floating Rate Interests

     91.6%  

Corporate Bonds & Notes

     3.8%  

Short-Term Investments & Other Net Assets

     3.0%  

Asset-Backed Securities

     1.6%  

Economic and Market Overview

The U.S. bond market, as measured by the Bloomberg U.S. Aggregate Bond Index, posted a +1.88% total return for the six months ended September 30, 2021.1 The inflation rate was elevated during the period amid high demand and supply-chain bottlenecks, with the price pressures coming principally from the areas most impacted by shutdowns related to the novel coronavirus (COVID-19) pandemic, such as used vehicles, airfares, semiconductors and energy. However, investors’ inflation expectations were relatively stable,

and a widely-used measure indicated that markets anticipated inflation will moderate. Longer-term bonds generally outperformed shorter-term bonds, as the yield curve (a measure of the difference between long-term and short-term bond yields) flattened slightly.

In an effort to support the economy, the U.S. Federal Reserve (Fed) kept the federal funds target rate at a record-low range of 0.00%–0.25%. The Fed also maintained quantitative easing measures aimed at ensuring credit flows to borrowers and supporting credit markets with open-ended U.S. Treasury and mortgage bond purchasing. In its September 2021 meeting statement, the Fed indicated that it soon plans to reduce its purchases of U.S. Treasury and mortgage-backed securities but declined to provide a timetable. The Fed also maintained that it views inflation as partially transitory, and that further employment progress was needed before the Fed would consider raising the range for the federal funds target rate.

U.S. Treasury bonds, as measured by the Bloomberg U.S. Treasury Index, posted a +1.83% total return for the six-month period.1 The 10-year U.S. Treasury yield (which moves inversely to price) declined amid an increase in novel coronavirus (COVID-19) cases as the Delta variant spread. Mortgage-backed securities (MBS), as measured by the Bloomberg MBS Index, posted a +0.43% total return for the period, helped by ongoing Fed support.1

Corporate bonds followed a similar trajectory as U.S. Treasuries, but benefited from a continued decline in spreads (the difference in yields between government and corporate bonds) amid an increase in investors’ appetite for risk. High-yield corporate bonds, as represented by the Bloomberg U.S. Corporate High Yield Bond Index, posted a +3.65% total return, while investment-grade corporate bonds, as represented by the Bloomberg U.S. Corporate Bond Index, posted a +3.54% total return.1

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

 

1. 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 Statement of Investments (SOI). The SOI begins on page 141.

 

           
52             

Semiannual Report

  franklintempleton.com


FRANKLIN LIBERTY SENIOR LOAN ETF

 

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.

 

Top 10 Sectors/Industries  
9/30/21  
      % of Total
Net Assets
 

Software

     14.7%  

Media

     11.1%  

Health Care Providers & Services

     8.4%  

Diversified Financial Services

     5.6%  

Specialty Retail

     5.1%  

Airlines

     4.4%  

IT Services

     4.2%  

Aerospace & Defense

     3.9%  

Pharmaceuticals

     3.6%  

Containers & Packaging

     3.2%  
Top 10 Holdings  
9/30/21       
Company
Sector/Industry
   % of Total
Net Assets
 

Athenahealth Inc.,2021 Term Loan B1, 4.453%,, 2/11/2026

Software

     1.8%  

Great Outdoors Group LLC, 2021 Term Loan B, 5.00%, 3/6/2028

Specialty Retail

     1.6%  

Clear Channel Outdoor Holdings Inc., Term B Loan, TBD, 8/21/2026

Media

     1.6%  

Finastra USA Inc., Dollar Term Loan, 4.50%, 6/13/2024

Software

     1.6%  

Cengage Learning Inc., 2021 Term Loan B, 5.75%, 6/29/2026

Media

     1.6%  

Sunshine Luxembourg VII SARL, 2021 Term Loan B3, 4.50%, 10/1/2026

Personal Products

     1.6%  

BWAY Holding Company, 2017 Term Loan B, 3.443%, 4/3/2024

Container & Packaging

     1.5%  

Staples Inc., 2019 Refinancing Term B-1 Loans, 5.126%, 4/16/2026

Specialty Retail

     1.5%  

Hyland Software Inc., Term Loan, 7/1/2024

Software

     1.5%  

Greeneden U.S. Holdings II LLC (Genesys), Initial Dollar Term Loan, 4.75%, 12/1/2027

Technology Hardware, Storage & Peripherals

     1.5%  

Manager’s Discussion

During the six-month period, the loan market posted strong returns amid continued progress in the global economic recovery. However, new issuance to finance mergers and acquisitions and leveraged buyouts significantly increased, which limited spread compression and moderated price gains in the asset class. The uneven pace of the recovery and the rise of virus variants also contributed to broader market volatility, but robust collateralized loan obligation issuance and steady inflows from retail investors helped to contain loan price movements. Although income drove most of the total return during the period, favorable technical conditions continued to drive demand for loans with relatively wider spreads and those trading at deeper discounts to par. Fundamental conditions also improved, as the default rate declined further, and credit rating upgrades continued to outpace downgrades.

During the period, the Fund outperformed its primary benchmark, the S&P/LSTA U.S. Leveraged Loan 100 Index. The Fund benefited from its credit quality allocation, as it maintained an overweighted position in middle tier loans (B rated).

 

           
franklintempleton.com  

Semiannual Report

             53


FRANKLIN LIBERTY SENIOR LOAN ETF

 

Upper-tier loans (BB rated) in the index returned +0.72%, middle-tier loans returned +1.13%, and lower-tier loans (CCC rated and below) returned +1.80%. As of period-end, the Fund had approximately 11% of its portfolio in the upper tier and 80% in the middle tier, compared to the index, which had 39% in the upper tier and 58% in the middle tier. The Fund’s loan selection among B rated loans also positively contributed to relative performance.

The top individual contributors to Fund performance included issuers that were more exposed to a reopening economy and traded higher from discounted levels amid improved investment sentiment regarding the recovery. American Airlines (a global airline operator) traded higher from discounted levels as the company saw an increase in demand, which accelerated leading into the summer travel season. William Morris Endeavor Entertainment (a distributor and manager of sports and entertainment content) contributed to performance as live events and entertainment production resumed and its parent company was able to issue an initial public offering. However, the top detractors from performance included issuers with operational challenges. The bond and term loan of Diamond Sports Group (an operator of regional sports networks) declined amid ongoing negotiations with debtholders regarding the company’s capital structure, while posting weaker financial results. Furthermore, Cineworld Group (an operator of cinemas) detracted from returns amid investor expectations of a slower recovery in movie theater attendance as virus-related restrictions on indoor gatherings were renewed.

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

Reema Agarwal, CFA

Justin Ma, CFA

Margaret Chiu, CFA, FRM

Portfolio Management Team

 

The foregoing information reflects our analysis, opinions and portfolio holdings as of September 30, 2021, 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.

 

           
54             

Semiannual Report

  franklintempleton.com


FRANKLIN LIBERTY SENIOR LOAN ETF

 

Performance Summary as of September 30, 2021

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 tables do 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. The price used to calculate market return (Market Price) is determined by using the midpoint between the highest bid and the lowest offer on the primary stock exchange on which shares of a fund are listed for trading, as of the time that such fund’s NAV is calculated. 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 9/30/211

 

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

6-Month

     +2.32%        +2.56%        +2.32%        +2.56%  

1-Year

     +6.73%        +6.76%        +6.73%        +6.76%  

3-Year

     +10.62%        +10.60%        +3.42%        +3.42%  

Since Inception (5/30/18)

     +12.69%        +12.94%        +3.65%        +3.71%  

 

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

3.89%

     3.69%        3.38%  

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 56 for Performance Summary footnotes.

 

           
franklintempleton.com  

Semiannual Report

             55


FRANKLIN LIBERTY SENIOR LOAN ETF

PERFORMANCE SUMMARY

 

Distributions (4/1/219/30/21)

Net Investment

Income

$0.461752

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. 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.

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 Fund has a fee waiver and/or expense reimbursement contractually guaranteed through 7/31/22. Fund investment results reflect the expense reduction; without this reduction, the results would have been lower.

2. Total return calculations represent the cumulative and average annual changes in value of an investment over the period 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 9/30/21.

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 effective as of October 1, 2021 (as stated in the Fund’s prospectus supplement dated October 1, 2021) and may differ from the expense ratios disclosed in the Your Fund’s Expenses and Financial Highlights section in this report. In periods of market volatility, assets may decline significantly, causing total annual Fund operating expenses to become higher than the figures shown.

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

 

           
56             

Semiannual Report

  franklintempleton.com


FRANKLIN LIBERTY SENIOR LOAN 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 x $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 4/1/21
    Ending
Account
Value 9/30/21
    Expenses
Paid During
Period
4/1/21–9/30/211,2
    Ending
Account
Value 9/30/21
    Expenses
Paid During
Period
4/1/21–9/30/211,2
    Net Annualized
Expense Ratio2
 
  $1,000.00     $ 1,023.20     $ 2.28     $ 1,022.81     $ 2.28       0.45

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.

2. Reflects expenses after fee waivers and expense reimbursements.

 

           
franklintempleton.com  

Semiannual Report

             57


Franklin Liberty Systematic Style Premia ETF

 

This semiannual report for Franklin Liberty Systematic Style Premia ETF covers the period ended September 30, 2021.

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 period, the Fund posted cumulative total returns of +4.89% based on market price and +5.43% based on net asset value (NAV). In comparison, the ICE BofA US 3-Month Treasury Bill Index posted a +0.01% 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 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.

 

Portfolio Composition  
9/30/21  
      % of Total
Net Assets
 

Common Stocks

     82.4%  

Other Net Assets

     17.6%  

Economic and Market Overview

The U.S. bond market, as measured by the Bloomberg U.S. Aggregate Bond Index, posted a +1.88% total return for the six months ended September 30, 2021.1 The inflation rate was elevated during the period amid high demand and supply-chain bottlenecks, with the price pressures coming principally from the areas most impacted by shutdowns related to the novel coronavirus (COVID-19) pandemic, such

as used vehicles, airfares, semiconductors and energy. However, investors’ inflation expectations were relatively stable, and a widely-used measure indicated that markets anticipated inflation will moderate. Longer-term bonds generally outperformed shorter-term bonds, as the yield curve (a measure of the difference between long-term and short-term bond yields) flattened slightly.

In an effort to support the economy, the U.S. Federal Reserve (Fed) kept the federal funds target rate at a record-low range of 0.00%–0.25%. The Fed also maintained quantitative easing measures aimed at ensuring credit flows to borrowers and supporting credit markets with open-ended U.S. Treasury and mortgage bond purchasing. In its September 2021 meeting statement, the Fed indicated that it soon plans to reduce its purchases of U.S. Treasury and mortgage-backed securities but declined to provide a timetable. The Fed also maintained that it views inflation as partially transitory, and that further employment progress was needed before the Fed would consider raising the range for the federal funds target rate.

U.S. Treasury bonds, as measured by the Bloomberg U.S. Treasury Index, posted a +1.83% total return for the six-month period.1 The 10-year U.S. Treasury yield (which moves inversely to price) declined amid an increase in novel coronavirus (COVID-19) cases as the Delta variant spread. Mortgage-backed securities (MBS), as measured by the Bloomberg MBS Index, posted a +0.43% total return for the period, helped by ongoing Fed support.1

Corporate bonds followed a similar trajectory as U.S. Treasuries, but benefited from a continued decline in spreads (the difference in yields between government and corporate bonds) amid an increase in investors’ appetite for risk. High-yield corporate bonds, as represented by the Bloomberg U.S. Corporate High Yield Bond Index, posted a +3.65% total return, while investment-grade corporate bonds, as represented by the Bloomberg U.S. Corporate Bond Index, posted a +3.54% total return.1

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.

 

1. 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 Consolidated Statement of Investments (SOI). The Consolidated SOI begins on page 148.

 

           
58             

Semiannual Report

  franklintempleton.com


FRANKLIN LIBERTY SYSTEMATIC STYLE PREMIA ETF

 

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 trading 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 Sectors/Industries  
9/30/21  
      % of Total
Net Assets
 

Software

     9.8%  

Interactive Media & Services

     5.5%  

Semiconductors & Semiconductor Equipment

     5.4%  

Capital Markets

     4.7%  

Biotechnology

     4.1%  

IT Services

     3.6%  

Hotels, Restaurants & Leisure

     3.6%  

Pharmaceuticals

     3.1%  

Oil, Gas & Consumable Fuels

     3.1%  

Banks

     2.9%  

 

Top 10 Long Positions  
9/30/21  

Company

Sector/Industry

   % of Total
Net Assets
 
FLSP Holdings Corp.
Diversified Financials, Cayman Islands
     6.5%  
Microsoft Corp.
Software & Services
     3.0%  
Alphabet Inc., A
Interactive Media & Services, United States
     1.9%  
Facebook Inc., A
Software & Services, United States
     1.8%  
Alphabet Inc., C
Interactive Media & Services, United States
     1.8%  
AbbVie Inc.
Pharmaceuticals, Biotechnology & Life Sciences, United States
     1.3%  
McDonald’s Corp.
Consumer Services, United States
     1.3%  
Intel Corp.
Semiconductors & Semiconductor Equipment, United States
     1.3%  
Texas Instruments Inc.
Semiconductors & Semiconductor Equipment, United States
     1.3%  
Adobe Inc.
Software & Services, United States
     1.3%  

 

           
franklintempleton.com  

Semiannual Report

             59


FRANKLIN LIBERTY SYSTEMATIC STYLE PREMIA ETF

 

Top 10 Short Holdings  
9/30/21  

Company

Sector/Industry/Country

   % of Total
Net Assets
 
Deutsche Lufthansa AG
Transportation, Germany
     0.0%  
Lundin Mining Corp.
Materials, Japan
     0.0%  
City Developments Ltd.
Real Estate,Japan
     0.0%  
Deutsche Lufthansa AG
Transportation, Germany
     0.0%  
Banque Cantonale Vaudoise
Banks, Switzerland
     0.0%  
Koninklijke Vopak NV
Energy, Netherlands
     -0.1%  
Howmet Aerospace Inc.
Capital Goods, United States
     -0.1%  
Rogers Communications Inc.
Telecommunications Services, Canada
     -0.1%  
a2 Milk Co. Ltd.
Food, Beverage & Tobacco, New Zealand
     -0.1%  
Air Canada
Transportation, Canada
     -0.1%  

Manager’s Discussion

During the six months ended September 30, 2021, the Fund’s commodities and equities strategies drove positive performance. Our macro commodity strategies accounted for the majority of contribution, while the equity indices macro strategy and long/short single stock equities strategy were also significant contributors.

Commodities strategies were the key drivers of gains during the period as prices generally rose sharply across the commodities spectrum. Long positioning in soybean oil, gasoil and Brent crude were the largest contributors, but gains were diverse, with 18 of the commodity futures we traded showing positive profit and loss for the period. Soybean meal, lean hogs and wheat were the only detractors.

Within our long/short single stock equities component, quality and momentum factors contributed to performance, while the value factor detracted in aggregate. Being long lower-volatility stocks and short higher-volatility significantly contributed to returns. In capital terms, the portfolio was net long, and this also aided performance, alongside the lower-volatility positioning. Our equity index macro strategies also had a positive impact, based on our long positioning in the U.S., Canada, Italy and Australia, together with our short positions in Japan, Germany and India.

The Fund’s foreign currency macro strategies had positive results during the period. Our long positions in the Brazilian real and South African rand, as well as short positions in the Japanese yen, Australian dollar and the euro all bolstered returns, owing to our foreign currency carry and value factors. Short positioning in the Israeli shekel was a notable detractor.

The Fund’s fixed income positioning weighed on returns overall during the period. Our fixed income macro strategies had a negative impact, as positions in U.S. Treasuries and long positions in Gilts detracted more from performance than the positive contribution from long positions in French and Italian bonds, as well as short positions in Canada.

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

Chandra Seethamraju, Ph.D.

Sundaram Chettiappan, CFA

Vaneet Chadha, CFA

Portfolio Management Team

 

 

The foregoing information reflects our analysis, opinions and portfolio holdings as of September 30, 2021, 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.

 

           
60             

Semiannual Report

  franklintempleton.com


FRANKLIN LIBERTY SYSTEMATIC STYLE PREMIA ETF

 

Performance Summary as of September 30, 2021

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. The price used to calculate market return (Market Price) is determined by using the midpoint between the highest bid and the lowest offer on the primary stock exchange on which shares of a fund are listed for trading, as of the time that such fund’s NAV is calculated. 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 9/30/21

 

     Cumulative Total Return1      Average Annual Total Return1  
      Based on
NAV2
    

Based on

market price3

     Based on
NAV2
    

Based on

market price3

 

6-Month

     +5.43%        +4.89%        +5.43%        +4.89%  

1-Year

     -0.43%        -1.20%        -0.43%        -1.20%  

Since Inception (12/18/19)

     -10.81%        -10.74%        -6.20%        -6.16%  

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.

See page 62 for Performance Summary footnotes.

 

           
franklintempleton.com  

Semiannual Report

             61


FRANKLIN LIBERTY SYSTEMATIC STYLE PREMIA ETF

PERFORMANCE SUMMARY

 

Distributions (4/1/219/30/21)

Net Investment

Income

$0.238487

Total Annual Operating Expenses4

 

  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. 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.

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

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

3. Assumes reinvestment of distributions based on market price.

4. Figures are effective as of October 1, 2021 (as stated in the Fund’s prospectus supplement dated October 1, 2021) and may differ from the expense ratios disclosed in the Your Fund’s Expenses and Financial Highlights section in this report. In periods of market volatility, assets may decline significantly, causing total annual Fund operating expenses to become higher than the figures shown.

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

 

           
62             

Semiannual Report

  franklintempleton.com


FRANKLIN LIBERTY 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 ETFs. 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 4/1/21
    Ending
Account
Value 9/30/21
    Expenses
Paid During
Period
4/1/21–9/30/211,2
    Ending
Account
Value 9/30/21
    Expenses
Paid During
Period
4/1/21–9/30/211,2
    Net Annualized
Expense Ratio2
 
  $1,000.00     $ 1,054.30     $ 3.35     $ 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.

2. Reflects expenses after fee waivers and expense reimbursements.

 

           
franklintempleton.com  

Semiannual Report

             63


Franklin Liberty U.S. Core Bond ETF

 

This semiannual report for Franklin Liberty U.S. Core Bond ETF covers the period ended September 30, 2021.

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.

Performance Overview

During the six-month period, the Fund posted cumulative total returns of +1.57% based on market price and +1.78% based on net asset value (NAV). In comparison, the Bloomberg U.S. Aggregate Bond Index, which tracks the U.S. investment-grade, taxable bond market, posted a +1.88% cumulative total return.1 You can find more of the Fund’s performance data in the Performance Summary beginning on page 67.

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.

 

Portfolio Composition  
9/30/21  
     

% of Total

Net Assets

 

U.S. Government & Agency Securities

     39.8%  

Corporate Bonds & Notes

     27.0%  

Mortgage-Backed Securities

     22.8%  

Foreign Government and Agency Securities

     3.9%  

Municipal Bonds

     3.5%  

Asset-Backed Securities

     1.4%  

Short-Term Investments & Other Net Assets

     1.6%  

Economic and Market Overview

The U.S. bond market, as measured by the Bloomberg U.S. Aggregate Bond Index, posted a +1.88% total return for the

six months ended September 30, 2021.1 The inflation rate was elevated during the period amid high demand and supply-chain bottlenecks, with the price pressures coming principally from the areas most impacted by shutdowns related to the novel coronavirus (COVID-19) pandemic, such as used vehicles, airfares, semiconductors and energy. However, investors’ inflation expectations were relatively stable, and a widely-used measure indicated that markets anticipated inflation will moderate. Longer-term bonds generally outperformed shorter-term bonds, as the yield curve (a measure of the difference between long-term and short-term bond yields) flattened slightly.

In an effort to support the economy, the U.S. Federal Reserve (Fed) kept the federal funds target rate at a record-low range of 0.00%–0.25%. The Fed also maintained quantitative easing measures aimed at ensuring credit flows to borrowers and supporting credit markets with open-ended U.S. Treasury and mortgage bond purchasing. In its September 2021 meeting statement, the Fed indicated that it soon plans to reduce its purchases of U.S. Treasury and mortgage-backed securities but declined to provide a timetable. The Fed also maintained that it views inflation as partially transitory, and that further employment progress was needed before the Fed would consider raising the range for the federal funds target rate.

U.S. Treasury bonds, as measured by the Bloomberg U.S. Treasury Index, posted a +1.83% total return for the six-month period.1 The 10-year U.S. Treasury yield (which moves inversely to price) declined amid an increase in novel coronavirus (COVID-19) cases as the Delta variant spread. Mortgage-backed securities (MBS), as measured by the Bloomberg MBS Index, posted a +0.43% total return for the period, helped by ongoing Fed support.1

Corporate bonds followed a similar trajectory as U.S. Treasuries, but benefited from a continued decline in spreads (the difference in yields between government and corporate bonds) amid an increase in investors’ appetite for risk. High-yield corporate bonds, as represented by the Bloomberg U.S. Corporate High Yield Bond Index, posted a +3.65% total return, while investment-grade corporate bonds, as represented by the Bloomberg U.S. Corporate Bond Index, posted a +3.54% total return.1

 

1. 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 Statement of Investments (SOI). The SOI begins on page 166.

 

           
64             

Semiannual Report

  franklintempleton.com


FRANKLIN LIBERTY U.S. CORE BOND ETF

 

Investment Strategy

The Fund invests predominantly in investment-grade bonds of U.S. issuers, including government, corporate-debt, mortgage-backed and asset-backed securities. The Fund’s investments in mortgage-backed securities include securities that are issued or guaranteed by the U.S. government, its agencies or instrumentalities, and private issuers, including commercial mortgage-backed securities. Under normal market conditions, the Fund 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.

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  
9/30/21  
     % of Total
Net Assets
 

U.S. Treasury Note, 2.125%, 2/29/2024

    6.3%  

U.S. Treasury Note, 1.375%, 8/31/2023

    5.8%  

U.S. Treasury Note, 0.375%, 11/30/2025

    5.4%  

U.S. Treasury Note, 0.375%, 1/31/2026

    3.5%  

U.S. Treasury Note, 0.50%, 3/31/2025

    3.1%  

U.S. Treasury Note, 0.875%, 6/30/2026

    2.1%  

U.S. Treasury Note, 1.50%, 3/31/2023

    1.8%  

U.S. Treasury Bond, 2.25%, 8/15/1946

    1.6%  

U.S. Treasury Note, 1.875%, 9/30/2022

    1.5%  

Federal National Mortgage Association, 2.00%, 7/1/1951

    1.5%  

Manager’s Discussion

Over the period under review, the Fund slightly underperformed its benchmark. For the period under review, security selection was a main contributor to performance. We saw strong positive performance contributions from our selection in investment-grade (IG) corporate bonds, agency mortgage-backed securities (MBS), and sovereign emerging market (EM) debt. In contrast, selection within municipal (muni) bonds curbed relative results. Sector allocations had a neutral impact on performance. Returns from our overweighted exposure in muni securities as well as an underweighted position in MBS and our neutral exposure to IG corporate bonds lifted relative results. In contrast, our overweighted position in sovereign EM and underweighted position in commercial MBS curbed performance over the previous six months. Positioning in asset-backed securities, sovereign bonds from developed nations, and U.S. agency-related issues had a neutral impact on returns. Although we maintained an overall duration similar to that of the benchmark, we were underweighted on the longer-end of the U.S. Treasury yield curve. This positioning weighed on relative returns as intermediate- and long-maturity U.S. Treasury yields fell throughout the period.

Thank you for your participation in Franklin Liberty 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

 

           
franklintempleton.com  

Semiannual Report

             65


FRANKLIN LIBERTY U.S. CORE BOND ETF

 

 

The foregoing information reflects our analysis, opinions and portfolio holdings as of September 30, 2021, 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.

 

           
66             

Semiannual Report

  franklintempleton.com


FRANKLIN LIBERTY U.S. CORE BOND ETF

 

Performance Summary as of September 30, 2021

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 tables do not reflect any taxes that a shareholder would pay on Fund dividends, capital gain distributions, if any, or any realized gains on the sale or redemption 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. The price used to calculate market return (Market Price) is determined by using the midpoint between the highest bid and the lowest offer on the primary stock exchange on which shares of a fund are listed for trading, as of the time that such fund’s NAV is calculated. 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 9/30/211

 

     Cumulative Total Return2      Average Annual Total Return2  
      Based on
NAV3
    

Based on

market price4

     Based on
NAV3
    

Based on

market price4

 

6-Month

     +1.78%        +1.57%        +1.78%        +1.57%  

1-Year

     -0.52%        -0.63%        -0.52%        -0.63%  

Since Inception (9/17/19)

     +7.12%        +7.08%        +3.44%        +3.42%  

 

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

2.20%

     1.26%        1.25%  

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 68 for Performance Summary footnotes.

 

           
franklintempleton.com  

Semiannual Report

             67


FRANKLIN LIBERTY U.S. CORE BOND ETF

PERFORMANCE SUMMARY

 

Distributions (4/1/21–9/30/21)

Net Investment
Income

$0.276461

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. 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.

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 Fund has a fee waiver and/or expense reimbursement contractually guaranteed through 7/31/22. Fund investment results reflect the expense reduction; without this reduction, the results would have been lower.

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 9/30/21.

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 effective as of October 1, 2021 (as stated in the Fund’s prospectus supplement dated October 1, 2021) and may differ from the expense ratios disclosed in the Your Fund’s Expenses and Financial Highlights section in this report. In periods of market volatility, assets may decline significantly, causing total annual Fund operating expenses to become higher than the figures shown.

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

 

           
68             

Semiannual Report

  franklintempleton.com


FRANKLIN LIBERTY 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 x $ 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 4/1/21
    Ending
Account
Value 9/30/21
    Expenses
Paid During
Period
4/1/21–9/30/211,2
    Ending
Account
Value 9/30/21
    Expenses
Paid During
Period
4/1/21–9/30/211,2
    Net Annualized
Expense Ratio2
 
  $1,000.00     $ 1,017.80     $ 0.76     $ 1,024.32     $ 0.76       0.15

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.

2. Reflects expenses after fee waivers and expense reimbursements.

 

           
franklintempleton.com  

Semiannual Report

             69


Franklin Liberty U.S. Low Volatility ETF

 

This semiannual report for Franklin Liberty U.S. Low Volatility ETF covers the period ended September 30, 2021.

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.

Performance Overview

During the six-month period, the Fund posted cumulative total returns of +7.49% based on market price and +7.60% based on net asset value (NAV). In comparison, the Russell 1000® Index posted a +8.76% 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 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.

 

Top 10 Sectors/Industries       
9/30/21       
      % of Total
Net Assets
 

Information Technology

     28.4%  

Health Care

     13.2%  

Consumer Discretionary

     12.1%  

Financials

     11.6%  

Communication Services

     10.7%  

Industrials

     7.8%  

Consumer Staples

     5.4%  

Real Estate

     3.0%  

Energy

     2.6%  

Utilities

     2.5%  

Economic and Market Overview

U.S. equities, as measured by the Standard & Poor’s 500 Index (S&P 500), posted a +9.18% total return for the six months ended September 30, 2021.1 Stocks benefited from the continued economic recovery, the ongoing implementation of novel coronavirus (COVID-19) vaccination programs and easing pandemic restrictions. The percentage of the population that received at least one vaccine dose more than doubled during the six-month period. A rebound in corporate earnings and the U.S. Senate’s passage of a bipartisan infrastructure bill further bolstered investor sentiment, helping equities to reach new all-time price highs late in the six-month period.

The U.S. economy continued to recover amid declining unemployment, wage growth and high business confidence. Gross domestic product growth was robust, as strong consumer spending continued to support the economy. The ongoing growth of the economy led the U.S. to surpass its pre-pandemic output in 2021’s second quarter.

The inflation rate was elevated during the six-month period amid increased demand and supply-chain bottlenecks, with the price pressures coming principally from the areas particularly impacted by the shutdown, such as used vehicles, airfares, semiconductors and energy. Personal consumption expenditure, a measure of inflation, also rose dramatically during the period, representing the highest 12-month increase in decades. The unemployment rate declined from 6.0% in March 2021 to 4.8% in September 2021 as job openings increased, but a relative lack of available workers fueled wage growth, adding to some investors’ inflation concerns.

In an effort to support the economy, the U.S. Federal Reserve (Fed) kept the federal funds target rate at a record-low range of 0.00%–0.25%. The Fed also maintained quantitative easing measures aimed at ensuring credit flows to borrowers and supporting credit markets with open-ended U.S. Treasury and mortgage bond purchasing. In its September 2021 meeting statement, the Fed indicated that it soon plans to reduce its purchases of U.S. Treasury and mortgage-backed securities but declined to provide a timetable. The Fed also maintained that it views inflation as

 

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 Statement of Investments (SOI). The SOI begins on page 177.

 

           
70             

Semiannual Report

  franklintempleton.com


FRANKLIN LIBERTY U.S. LOW VOLATILITY ETF

 

partially transitory, and that further employment progress was needed before the Fed would consider raising the range for the federal funds target rate.

 

Top 10 Holdings       
9/30/21       
Company
Sector/Industry
   % of Total
Net Assets
 
International Business Machines Corp.
Information Technology
     1.5%  
Mastercard Inc., A
Information Technology
     1.5%  
Visa Inc., A
Information Technology
     1.5%  
Oracle Corp.
Information Technology
     1.5%  
Automatic Data Processing Inc.
Information Technology
     1.5%  
Black Knight Inc.
Information Technology
     1.5%  
Texas Instruments Inc.
Information Technology
     1.5%  
Apple Inc.
Information Technology
     1.5%  
Fidelity National Information Services Inc.
Information Technology
     1.5%  
Analog Devices Inc.
Information Technology
     1.5%  

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. The investment manager screens that universe on a quarterly basis in order to identify those securities with the lowest realized volatility relative to their corresponding sectors, while also incorporating fundamental view 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. The investment manager 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 positive absolute returns but underperformed its benchmark, the Russell 1000® Index, for the six-month period ended September 30, 2021. Stock selection in the information technology (IT) sector was the most significant detractor from relative performance during the period. While our holdings in Microsoft and Apple delivered absolute gains, their underweightings resulted in negative relative performance. In contrast, an overweighted position in Intuit was a top contributor in the information technology sector. The financial software company reported better-than-expected financial results for the recent quarter, with solid growth across segments, including its online services and Small Business and Self-Employed Group.

BWX Technologies detracted from relative performance in the industrials sector. The shares of this leading supplier of nuclear components and fuel to the U.S. government and commercial nuclear power industry lagged as recent quarterly results were impacted by COVID-19 headwinds. An overweighting in Fidelity National Information Services was another detractor from the IT sector. This provider of IT solutions for financial services firms underperformed despite reporting quarterly earnings and revenue estimates that beat expectations. Elsewhere, an overweighted position in Nasdaq, a financial services firm and operator of stock exchanges, added to the Fund’s results.

McCormick & Company detracted from relative performance in the consumer staples sector. While demand for its products remained high, the spice maker’s operations were complicated by supply chain issues tied to the pandemic. Conversely, Danaher contributed to returns in the health care sector. The medical equipment maker announced plans to expand its COVID-19 vaccine footprint through acquisition. Other contributors included Oracle and Synopsis from the information technology sector. Enterprise software maker Oracle benefited from the increase in corporate spending as the global economy reopened, while Synopsys benefited from continued demand for its semiconductor chips.

Thank you for your participation in Franklin Liberty U.S. Low Volatility ETF. We look forward to serving your future investment needs.

Todd Brighton, CFA

Portfolio Manager

 

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.; (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.

 

           
franklintempleton.com  

Semiannual Report

             71


FRANKLIN LIBERTY U.S. LOW VOLATILITY ETF

 

 

The foregoing information reflects our analysis, opinions and portfolio holdings as of September 30, 2021, 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.

 

           
72             

Semiannual Report

  franklintempleton.com


FRANKLIN LIBERTY U.S. LOW VOLATILITY ETF

 

Performance Summary as of September 30, 2021

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 or redemption 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. The price used to calculate market return (Market Price) is determined by using the midpoint between the highest bid and the lowest offer on the primary stock exchange on which shares of a fund are listed for trading, as of the time that such fund’s NAV is calculated. 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 9/30/21

 

     Cumulative Total Return1      Average Annual Total Return1  
      Based on
NAV2
    

Based on

market price3

     Based on
NAV2
    

Based on

market price3

 

6-Month

     +7.60%        +7.49%        +7.60%        +7.49%  

1-Year

     +22.13%        +21.96%        +22.13%        +21.96%  

5-Year

     +100.81%        +102.06%        +14.96%        +15.11%  

Since Inception (9/20/16)

     +102.98%        +103.11%        +15.12%        +15.14%  

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 74 for Performance Summary footnotes.

 

           
franklintempleton.com  

Semiannual Report

             73


FRANKLIN LIBERTY U.S. LOW VOLATILITY ETF

PERFORMANCE SUMMARY

 

Distributions (4/1/21–9/30/21)

Net Investment
Income

$0.343674

Total Annual Operating Expenses4

 

  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.

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. 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.

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

3. Assumes reinvestment of distributions based on market price.

4. Figures are effective as of October 1, 2021 (as stated in the Fund’s prospectus supplement dated October 1, 2021) and may differ from the expense ratios disclosed in the Your Fund’s Expenses and Financial Highlights section in this report. In periods of market volatility, assets may decline significantly, causing total annual Fund operating expenses to become higher than the figures shown.

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

 

           
74             

Semiannual Report

  franklintempleton.com


FRANKLIN LIBERTY U.S. LOW VOLATILITY 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 x $ 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 4/1/21
    Ending
Account
Value 9/30/21
    Expenses
Paid During
Period
4/1/21–9/30/211,2
    Ending
Account
Value 9/30/21
    Expenses
Paid During
Period
4/1/21–9/30/211,2
    Net Annualized
Expense Ratio2
 
  $1,000.00     $ 1,076.00     $ 1.51     $ 1,023.61     $ 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.

2. Reflects expenses after fee waivers and expense reimbursements.

 

           
franklintempleton.com  

Semiannual Report

             75


Franklin Liberty U.S. Treasury Bond ETF

 

This semiannual report for Franklin Liberty U.S. Treasury Bond ETF covers the period ended September 30, 2021.

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 +1.49% based on market price and +1.78% 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 +1.83% cumulative total return.1 You can find more of the Fund’s performance data in the Performance Summary beginning on page 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.

 

Portfolio Composition  
9/30/21       
      % of Total
Net Assets
 

U.S. Government & Agency Securities

     97.8%  

Mortgage-Backed Securities

     1.7%  

Short-Term Investments & Other Net Assets

     0.5%  

Economic and Market Overview

The U.S. bond market, as measured by the Bloomberg U.S. Aggregate Bond Index, posted a +1.88% total return for the six months ended September 30, 2021.1 The inflation rate was elevated during the period amid high demand and supply-chain bottlenecks, with the price pressures coming principally from the areas most impacted by shutdowns related to the novel coronavirus (COVID-19) pandemic, such

as used vehicles, airfares, semiconductors and energy. However, investors’ inflation expectations were relatively stable, and a widely-used measure indicated that markets anticipated inflation will moderate. Longer-term bonds generally outperformed shorter-term bonds, as the yield curve (a measure of the difference between long-term and short-term bond yields) flattened slightly.

In an effort to support the economy, the U.S. Federal Reserve (Fed) kept the federal funds target rate at a record-low range of 0.00%–0.25%. The Fed also maintained quantitative easing measures aimed at ensuring credit flows to borrowers and supporting credit markets with open-ended U.S. Treasury and mortgage bond purchasing. In its September 2021 meeting statement, the Fed indicated that it soon plans to reduce its purchases of U.S. Treasury and mortgage-backed securities but declined to provide a timetable. The Fed also maintained that it views inflation as partially transitory, and that further employment progress was needed before the Fed would consider raising the range for the federal funds target rate.

U.S. Treasury bonds, as measured by the Bloomberg U.S. Treasury Index, posted a +1.83% total return for the six-month period.1 The 10-year U.S. Treasury yield (which moves inversely to price) declined amid an increase in novel coronavirus (COVID-19) cases as the Delta variant spread. Mortgage-backed securities (MBS), as measured by the Bloomberg MBS Index, posted a +0.43% total return for the period, helped by ongoing Fed support.1

Corporate bonds followed a similar trajectory as U.S. Treasuries, but benefited from a continued decline in spreads (the difference in yields between government and corporate bonds) amid an increase in investors’ appetite for risk. High-yield corporate bonds, as represented by the Bloomberg U.S. Corporate High Yield Bond Index, posted a +3.65% total return, while investment-grade corporate bonds, as represented by the Bloomberg U.S. Corporate Bond Index, posted a +3.54% total return.1

 

1. 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 Statement of Investments (SOI). The SOI begins on page 181.

 

           
76             

Semiannual Report

  franklintempleton.com


FRANKLIN LIBERTY U.S. TREASURY BOND ETF

 

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 sponsored 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.

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  
9/30/21       
      % of Total
Net Assets
 
U.S. Treasury Note , 0.125%, 5/31/22      9.0%  
U.S. Treasury Bond , 1.875%, 7/31/26      8.0%  
U.S. Treasury Bond , 0.5%, 6/30/27      6.3%  
U.S. Treasury Bond , 1.25%, 4/30/28      4.7%  
U.S. Treasury Bond , 2.50%, 5/15/24      3.6%  
U.S. Treasury Bond , 1.50%, 11/30/24      3.4%  
U.S. Treasury Bond , 2.25%, 11/15/24      3.4%  
U.S. Treasury Bond , 2.125%, 3/31/24      3.3%  
U.S. Treasury Bond , 2.125%, 11/30/24      3.3%  
U.S. Treasury Bond , 2.0%, 4/30/24      3.1%  

Manager’s Discussion

During the review period, our non-benchmark allocation to U.S. Treasury Inflation-Protected Securities was the primary contributor to performance relative to the benchmark. While forward-looking inflation expectations started and ended the period at roughly the same level, robust realized inflation benefited the Fund with strong accruals. Conversely, our allocation to agency fixed-rate mortgage-backed securities detracted from results as spreads widened over the period. Our overall duration positioning hindered relative returns over the period, mainly from the 10-year and 30-year duration portions of the curve. The Fund was positioned with less duration than the benchmark overall and positioned across the curve to benefit from a steepening of the yield curve. Over the period, yields for Treasuries with maturities less than five years rose, while yields for Treasuries with maturities greater than five years fell.

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

Warren Keyser

Patrick Klein, Ph.D.

Portfolio Management Team

 

           
franklintempleton.com  

Semiannual Report

             77


FRANKLIN LIBERTY U.S. TREASURY BOND ETF

 

 

The foregoing information reflects our analysis, opinions and portfolio holdings as of September 30, 2021, 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.

 

           
78             

Semiannual Report

  franklintempleton.com


FRANKLIN LIBERTY U.S. TREASURY BOND ETF

 

Performance Summary as of September 30, 2021

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 tables do not reflect any taxes that a shareholder would pay on Fund dividends, capital gain distributions, if any, or any realized gains on the sale or redemption 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. The price used to calculate market return (Market Price) is determined by using the midpoint between the highest bid and the lowest offer on the primary stock exchange on which shares of a fund are listed for trading, as of the time that such fund’s NAV is calculated. 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 9/30/211

 

     Cumulative Total Return2      Average Annual Total Return2  
      Based on
NAV3
    

Based on

market price4

     Based on
NAV3
    

Based on

market price4

 

6-Month

     +1.78%        +1.49%        +1.78%        +1.49%  

1-Year

     -2.91%        -3.10%        -2.91%        -3.10%  

Since Inception (6/9/20)

     -1.63%        -1.72%        -1.25%        -1.31%  

 

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

1.82%

     0.87%        0.48%  

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 80 for Performance Summary footnotes.

 

           
franklintempleton.com  

Semiannual Report

             79


FRANKLIN LIBERTY U.S. TREASURY BOND ETF

PERFORMANCE SUMMARY

 

Distributions (4/1/21–9/30/21)

Net Investment
Income

$0.215158

Total Annual Operating Expenses7

 

  0.09%

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. 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.

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 Fund has a fee waiver and/or expense reimbursement contractually guaranteed through 7/31/22. Fund investment results reflect the expense reduction; without this reduction, the results would have been lower.

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 9/30/21.

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 effective as of October 1, 2021 (as stated in the Fund’s prospectus supplement dated October 1, 2021) and may differ from the expense ratios disclosed in the Your Fund’s Expenses and Financial Highlights section in this report. In periods of market volatility, assets may decline significantly, causing total annual Fund operating expenses to become higher than the figures shown.

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

 

           
80             

Semiannual Report

  franklintempleton.com


FRANKLIN LIBERTY U.S. TREASURY 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 x $ 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 4/1/21
    Ending
Account
Value 9/30/21
    Expenses
Paid During
Period
4/1/21–9/30/211,2
    Ending
Account
Value 9/30/21
    Expenses
Paid During
Period
4/1/21–9/30/211,2
    Net Annualized
Expense Ratio