The core question of differentiation

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Franklin Templeton’s multi-factor equity framework shows how data discipline and precise risk control can help turn complexity into consistency for today’s fee-conscious advisors

ADVISORS TODAY are being asked to demonstrate value on every basis point. Clients see costs more clearly, and upcoming total cost reporting rules will make that visibility sharper still. The focus is no longer only on returns but on how those returns are achieved and what investors pay for them. For Michael Greenberg, SVP/portfolio manager, head of Americas portfolio management for Franklin Templeton Investment Solutions, that shift is influencing how advisors think about the core of a portfolio. “Passive products give you the cheapest exposure to markets but no opportunity for outperformance,” he says. “Highly active strategies can provide that potential, but they come with more dispersion and higher cost. We wanted something that could sit at the centre of a portfolio − transparent and disciplined in how it pursues value.”

Franklin Resources, Inc. [NYSE:BEN] is a global investment management organization with subsidiaries operating as Franklin Templeton and serving clients in over 150 countries. In Canada, the company’s subsidiary is Franklin Templeton Investments Corp., which operates as Franklin Templeton Canada. Franklin Templeton’s mission is to help clients achieve better outcomes through investment management expertise, wealth management, and technology solutions. Through its specialist investment managers, the company offers specialization on a global scale, bringing extensive capabilities in fixed income, equity, alternatives, and multi-asset solutions. With more than 1,300 investment professionals and offices in major financial markets around the world, the California-based company has over 75 years of investment experience.

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Merging the predictive power of systematic models with the depth of fundamental research

Systematic Alpha Factors

“Advisors have become portfolio managers in their own right. They want to understand how much of their clients’ performance comes from intentional exposures, and how much from chance. These strategies are designed to make that distinction clear”

Michael Greenberg, Franklin Templeton Investment Solutions

That thinking shapes Franklin Templeton’s Core Equity Funds, a suite covering Canadian, US, and international equities. While new to the retail space, these funds are not untested. They have been used for years within the firm’s institutional and multi-asset portfolios. This speaks to a broader trend: the institutionalization of retail advice, where advisors are increasingly adopting the same risk frameworks and evidence-based processes that pension funds and endowments have used for decades.

Behind the strategy is a quantitative framework built around a five-factor framework: quality, value, sentiment, alternative, and conviction. These are established drivers of performance that the team calibrates using data, economic rationale, and fundamental insight. “We build from evidence,” says Adrian Chan, SVP/portfolio manager, head of quantitative research with Franklin Templeton Investment Solutions. “If we cannot explain why a factor works, we do not use it. Every position in the portfolio has to connect back to an observable, testable source of return.” The quality factor identifies companies with stable profitability, efficient use of assets, and consistent earnings. Within this bucket, the team looks for signals such as research and development intensity, viewing companies that invest in innovation as having stronger long-term prospects.

The value factor focuses on companies trading below their intrinsic worth, those whose prices lag their fundamentals. Here, the team also incorporates shareholder alignment indicators such as buyback activity to confirm management’s confidence in the business. Sentiment, also known as momentum, captures companies with positive price and earnings trends. Historical research shows that firms outperforming expectations often continue to do so, reflecting behavioural underreaction in markets. The alternative factor differentiates the strategy from many quantitative peers. One of its signals tracks companies with low short interest, which Chan describes as a subtle yet meaningful gauge of market conviction. “Stocks that are not

“We minimize risks that the market does not reward. A portfolio that relies on big sector bets or size tilts may look active, but over the long run those exposures do not consistently add value”

Adrian Chan, Franklin Templeton Investment Solutions

The structure of the Core Equity Funds draws on decades of institutional experience. Each portfolio is engineered to direct risk toward areas where investors are compensated over time, while minimizing exposure to unrewarded factors such as large sector tilts or size biases. “Every risk we take is deliberate,” Chan says. “We focus on what we call alpha-factor risk, which is risk tied to measurable drivers of return, like quality or value. We minimize risks that the market does not reward. A portfolio that relies on big sector bets or size tilts may look active, but over the long run those exposures do not consistently add value.”

To achieve that precision, the team uses optimization techniques that align risk factor exposures closely with their benchmarks but have positive active loadings to alpha factor risk. The result is portfolios that behave like the market but show consistent outperformance when factor signals are strong. Rebalancing occurs monthly, guided by model signals that weigh potential improvements in expected return against the costs of trading. Turnover generally ranges between 60 and 80 percent a year, allowing the portfolios to stay responsive without excessive activity. Constraints on liquidity ensure that every position remains practical to manage under stressed conditions. Greenberg believes this kind of engineering represents where the broader advisory industry is heading. “Advisors have become portfolio managers in their own right,” he says. “They want to understand how much of their clients’ performance comes from intentional exposures, and how much comes from chance. These kinds of strategies are designed to make that distinction clear.” The consistency of the process also matters for client communication. “Predictability helps clients stay invested,” Greenberg says. “It reinforces trust when performance can be linked to something observable rather than a story about timing.”

Businessman examining a magnifying glass over a certificate of quality assurance with a checkmark, symbolizing compliance and excellence in business

Building portfolios from evidence

Designing portfolios that take risk where it counts

Published November 18, 2025

Derived from data-driven analysis of market behavior, fundamentals, and pricing anomalies Designed to systematically pursue persistent sources of excess return

Conviction Alpha Factor

Extracted from fundamental managers’ research-intensive stock selection Focused on company-specific insights and idiosyncratic return drivers

Quality

Value

Sentiment

Alternative

Conviction

Designed to improve the foundational equity allocation – these building-block funds offer broad, diversified exposure across major regions.

How to use Core Equity Funds in your practice

Strengthen your core

Tailor regional allocations

Tactical flexibility

Manage risk

Supports both strategic and tactical allocation decisions – these funds provide broad, diversified regional exposure.

Give overly passive portfolios a nudge away from the index with alpha driven upside potential, or bring heavily active portfolios closer to the index for a more controlled approach.

A sophisticated process featuring multi-layered screening and optimization, designed to manage volatility and enhance risk adjusted returns.

being shorted by professional investors tend to outperform over time,” he says. “It is a nontraditional insight that has held up well in our testing.” The fifth pillar, conviction, links Franklin Templeton’s fundamental and quantitative expertise. It distills the strongest common ideas across the firm’s equity teams from around the world into a measurable signal. “We’re effectively quantifying where our fundamental managers have the highest confidence,” Greenberg explains. “That lets us translate deep, human research into something systematic that strengthens the overall process.” Together, these factors are designed to balance one another. Value and sentiment often behave differently across the cycle; quality and conviction smooth the ride when volatility increases. By combining them in roughly equal risk weight, the portfolios aim to produce steadier, more repeatable performance over time.

As fee disclosure rules reshape client conversations, the role of the core portfolio is changing. Advisors are looking for allocations that can stand up to scrutiny, both for how they are priced and how they perform. In that environment, the ability to explain the design behind a strategy has become as important as the results themselves. “These portfolios are built to be explainable,” Chan says. “You can point to the factors that drive returns, show where the risk resides, and describe the research behind it. That clarity is what helps advisors demonstrate value to their clients.” Greenberg sees that transparency as part of a broader cultural shift in asset management. “It is not enough for a strategy to perform well,” he says. “Advisors need to understand why it performs the way it does and to be confident that those drivers are repeatable.” Diversification and differentiation are the cornerstones of the strategy’s design. Chan describes them as twin disciplines that protect portfolios from both concentration and conformity. “Diversification is essential for risk control,” he says. “But differentiation is what helps you stand apart when the market becomes crowded.”

A clearer definition of what “core” means

He recalls how quantitative strategies that were heavily concentrated in similar positions suffered during the “quant meltdowns” of 2007 and 2018, when crowded trades unwound rapidly. “When everyone owns the same idea, the risk is not in the model, it is in the crowd,” Chan says. “We have learned that being slightly different can sometimes make all the difference.” That principle may be especially relevant now, as factor investing itself has become more mainstream. When too many portfolios follow the same logic, the real edge may come from subtle variations − from how data is read, how risk is sized, or how signals are weighted. As advisors rethink what belongs at the core of a client portfolio, this combination of technology, research depth, and disciplined risk management points to a broader question: in a world where data is abundant and strategies increasingly converge, how do you maintain true differentiation? It is not just a question for quantitative managers. It is one that sits at the centre of modern advice: how to deliver value that is both measurable and meaningfully distinct.

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Important legal information This material is intended to be of general interest only and should not be construed as individual investment advice or a recommendation or solicitation to buy, sell, or hold any security or to adopt any investment strategy. It does not constitute legal or tax advice. The views expressed are those of the investment manager, and the comments, opinions, and analyses are rendered as at publication date and may change without notice. The information provided in this material is not intended as a complete analysis of every material fact regarding any country, region, or market. Commissions, trailing commissions, management fees, brokerage fees, and expenses may be associated with investments in mutual funds and ETFs. Please read the prospectus and fund fact/ETF facts document before investing. Mutual funds and ETFs are not guaranteed. Their values change frequently. Past performance may not be repeated. Franklin Templeton Canada is a business name used by Franklin Templeton Investments Corp.This material is intended to be of general interest only and should not be construed as individual investment advice or a recommendation or solicitation to buy, sell, or hold any security or to adopt any investment strategy. It does not constitute legal or tax advice. The views expressed are those of the investment manager, and the comments, opinions, and analyses are rendered as at publication date and may change without notice. The information provided in this material is not intended as a complete analysis of every material fact regarding any country, region, or market. Commissions, trailing commissions, management fees, brokerage fees, and expenses may be associated with investments in mutual funds and ETFs. Please read the prospectus and fund fact/ETF facts document before investing. Mutual funds and ETFs are not guaranteed. Their values change frequently. Past performance may not be repeated. Franklin Templeton Canada is a business name used by Franklin Templeton Investments Corp.

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