Legg Mason Small-Cap Quality Value ETF (SQLV) seeks to provide capital appreciation by tracking the investment results of an index composed of small-cap stocks trading in the United States that have relatively low valuations.
- SQLV is designed for investors seeking growth of capital through strategic multi-factor, small-cap exposure in an ETF wrapper.
- Focuses on high quality, US-traded small-cap stocks with relatively low valuations
- Uses a proprietary, multi-factor scoring system that emphasizes high profitability companies (Quality) selling at attractive valuations (Value)
- Thoughtfully combines strategic factors—based on decades of insights from highly-regarded small-cap practitioners—all in an ETF wrapper
- Uses a strategic, multi-factor approach that generally favors small-cap stocks with lower than average valuation, higher than average profitability and higher than average debt coverage.
- Fundamental weighting aims to add value by relying on more efficient estimations of the companies’ true economic value than those provided by market capitalization. Targets lower exposure to overvalued companies, while still maintaining broad diversification.
- Based on Royce’s decades of experience managing small-cap stocks as well as academic research on the favorable attributes of certain stock factors.
Meet your managers
Royce Investment Partners specializes in small-cap investing, managing both U.S. and international portfolios for individual investors, financial advisors, and institutions. The firm is generally regarded as a pioneer in small-cap investing. Focusing on this distinctive asset class for more than 45 years has given Royce an unparalleled domain knowledge of the small-company investment universe.
George Necakov, CFA, (industry since 1994) has been the Portfolio Manager, and Michael Connors (industry since 2003) has been the Assistant Portfolio Manager of the fund since its inception.
Royce Investment Partners, established in 1972, is dedicated to managing portfolios of small- and micro-cap US companies. Based in New York and with over four decades of small-cap investment experience, the firm uses a disciplined value approach to portfolio management.
George Necakov, CFA
Director of Portfolio Analytics
The Legg Mason Small-Cap Quality Value ETF seeks to track the investment results of the Royce Small-Cap Quality Value Index which is a proprietary index composed of small-cap stocks trading in the United States with relatively low valuations, high profitability and high debt coverage compared with the average of stocks in the investment universe. The ETF will invest at least 95% of its total assets in component securities of the Royce Small-Cap Quality Value Index. The Index construction rules have been developed based on Royce’s decades of experience managing small-cap stocks as well as academic literature on the favorable attributes of certain stock factors. As a result, the Index will generally favor stocks with lower than average valuation, higher than average profitability and higher than average debt coverage compared with stocks in the investment universe. Additionally, the Index construction rules were chosen to seek to maintain diversification by limiting the weighting of individual constituents as well as sectors. Index constituents are chosen from a universe of small-cap stocks which meet certain criteria. The investment universe includes common stocks of US headquartered companies listed on US exchanges, and excludes royalty companies, master limited partnerships, stocks with a share price less than or equal to $1 and stocks with insufficient trading volume. The universe is then refined to include stocks with market capitalizations that are between the 1001st and 3000th largest stocks based on descending market capitalization at time of rebalance. From that universe REITs are excluded and Index constituents are selected using a proprietary, multi-factor scoring system. Index position weights are then calculated using a fundamental composite score that aims at adding value by relying on more efficient estimations of the companies’ true economic value than those provided by market capitalization. By using fundamental factors to weight stocks rather than market capitalization the index seeks to have lower exposure to overvalued companies, while still maintaining broad diversification. Concentration limits are also implemented in the construction process of the Index. The Index constituents are reconstituted and rebalanced quarterly.
What I Should Know
Equity securities are subject to price fluctuation and possible loss of principal. The Fund invests primarily in small-cap stocks, which may involve considerably more risk than investing in larger-cap stocks. The Fund has significant exposure to U.S. issuers. A decrease in imports or exports, changes in trade regulations and/or an economic recession in the United States may have a material adverse effect on the U.S. economy and the securities listed on U.S. exchanges. There is no guarantee that the Fund will achieve a high degree of correlation to the index it seeks to track. The Fund does not seek to outperform the index it tracks, and does not seek temporary defensive positions when markets decline or appear overvalued. The Fund may focus its investments in certain industries, increasing its vulnerability to market volatility. Diversification does not ensure gains or protect against market declines.
Performance shown represents past performance and is no guarantee of future results. Current performance may be higher or lower than the performance shown. Investment return and principal value will fluctuate so shares, when redeemed, may be worth more or less than the original cost. The NAV return is based on the NAV of the Fund and effective July 1, 2020, market price returns typically will be based upon the official closing price of the ETF’s shares. Prior to July 1, 2020, market price returns generally were based upon the mid-point between the bid and ask on the Fund’s principal trading market when the Fund’s NAV was determined, which was typically 4:00 p.m. Eastern time (US). Market price performance reported for periods prior to July 1, 2020 will continue to reflect market prices calculated based upon the mid-point between the bid and ask on the Fund’s principal trading market typically as of 4:00 p.m. Eastern time (US). These returns do not represent investors’ returns had they traded shares at other times. Performance figures for periods shorter than one year represent cumulative figures and are notannualized.
Shareholders may pay more than net asset value when they buy Fund shares and receive less than net asset value when they sell those shares, because shares are bought and sold at current market prices.
*Distribution rate is calculated by annualizing the most recent distribution amount paid, excluding special distributions, divided by the closing market price or NAV.
**Gross expenses are the Fund's total annual operating expenses. There are currently no fee waivers in effect, so gross and net expenses are identical. The Gross and Net Expenses listed include 0.02 of Acquired Fund Fees and Expenses ("AFFE") that are required to be shown in the Fund's prospectus. AFFE reflects the Fund's pro rata share of fees and expenses relating to its investments in acquired funds; however, AFFE are not incurred directly by the Fund. Therefore, AFFE are not reflected in the Fund's audited financial statements or financial highlights.
IMPORTANT HOLDINGS INFORMATION: Portfolio holdings are based on total portfolio, and are subject to change at any time. Holdings are provided for informational purposes only and should not be construed as a recommendation to purchase or sell any security. Any negative allocations or allocations in excess of 100% are primarily due to unsettled trade activities.
Distributions are not guaranteed and are subject to change.
The per share distribution amounts presented above reflect the distribution rates that were paid to shareholders on the indicated payable dates. The character of distributions for certain funds may have been subsequently adjusted for tax purposes. Shareholders can determine which funds may have reclassified the tax character of distributions by visiting the Tax Center in Account Services. Information on reclassifications for distributions paid during the current calendar year will not be available until the first quarter of the following year.
When the value of a fund holding increases, the fund has an unrealized capital gain until the fund sells or otherwise disposes of the holding. Upon disposition of the appreciated holding, the fund realizes the gain. Under U.S. tax laws, during its taxable year, a fund must distribute all capital gains that it has realized from the disposition of fund holdings, net of realized losses, so the fund will not be subject to an entity level income tax.
Consequently, a fund’s capital gain distribution in a particular year is a result of the disposition of holdings that may have appreciated in value, perhaps during prior years when the fund’s returns were positive. To the extent that a fund has long-term capital gains that exceed current period and deferred short-term capital losses from a prior year, a fund may have distributable gains that will be distributed to shareholders. Such gains would be distributed to shareholders as a long-term capital gain distribution no matter how long the shareholder has owned shares in the mutual fund.
While the fund may itself gain or lose value over the course of a year, a capital gain distribution paid by the fund may not be indicative of current performance of the fund. The distributable amount of net capital gains are calculated under U.S. tax laws and are paid on a per-share basis to all investors who hold shares of the fund on the record date of the distribution. A shareholder must report the amount of net gains distributed to them on their income tax return regardless of when the gains or losses arose in the fund.
Please see a fund’s annual report for specific information regarding distributions and unrealized capital gains.
Franklin Resources, Inc., its specialized investment managers and its employees are not in the business of providing tax or legal advice to taxpayers. These materials and any tax-related statements are not intended or written to be used, and cannot be used or relied upon, by any such taxpayer for the purpose of avoiding tax penalties or complying with any applicable tax laws or regulations. Tax-related statements, if any, may have been written in connection with the promotion or marketing of the transaction(s) or matter(s) addressed by these materials, to the extent allowed by applicable law. Each investor’s tax situation is different, and is based on an individual’s tax bracket, type of account used for investment and other factors. Any such taxpayer should seek advice based on the taxpayer's particular circumstances from an independent tax advisor.
IMPORTANT INFORMATION: All investments involve risk, including loss of principal. Past performance is no guarantee of future results. Please see each product’s webpage for specific details regarding investment objective, risks, performance and other important information. Review this information carefully before you make any investment decision. Investors cannot invest directly in an index, and unmanaged index returns do not reflect any fees, expenses or sales charges.
Carefully consider a fund’s investment objectives, risks, charges and expenses before investing. Please view the prospectus or summary prospectus for this and other information. Read it carefully.
Authorized participants ("APs") may acquire shares in the primary market directly from the ETFs and may tender their shares for redemption directly to the ETFs, at net asset value per share only in Creation Units or Creation Unit Aggregations. Once created, shares of the funds generally trade in the secondary market in amounts less than a Creation Unit.
Retail investors buy and sell shares of ETFs at market price (not NAV) in the secondary market throughout the trading day. These shares are not individually available for purchase or redemption directly from the ETF.
Legg Mason Investor Services, LLC (LMIS) serves as the distributor of Creation Units for the ETFs on an agency basis. LMIS does not maintain a secondary market in the funds' shares.
If you are neither a resident nor a citizen of the United States or if you are a non-U.S. entity, the ETF's ordinary income dividends (which include distributions of net short-term capital gains) will generally be subject to a 30% U.S. federal withholding tax, unless a lower treaty rate applies. For further information, please see each fund’s prospectus.
Redemption payments will be effected within the specified number of calendar days following the date on which a request for redemption in proper form is made. Please see each fund’s statement of additional information (SAI) for more information.
FINANCIAL ADVISORS: Please note that not all products may be available for sale at your firm. Please call the Legg Mason Sales Desk 1-800-822-5544 or your Legg Mason Sales contact for more information.
Exchange Traded Funds (ETFs) — A type of investment company which is bought and sold on a securities exchange. ETFs generally represent a portfolio of securities, derivative instruments, currencies or commodities. The risks of owning an ETF generally reflect the risks of owning the underlying securities or commodities the ETF is designed to track. ETFs also have management fees and operating expenses that increase their costs.
Franklin Resources, Inc., its specialized investment managers, and its employees are not in the business of providing tax or legal advice to taxpayers. These materials and any tax-related statements are not intended or written to be used, and cannot be used or relied upon, by any such taxpayer for the purpose of avoiding tax penalties or complying with any applicable tax laws or regulations. Tax-related statements, if any, may have been written in connection with the “promotion or marketing” of the transaction(s) or matter(s) addressed by these materials, to the extent allowed by applicable law. Any such taxpayer should seek advice based on the taxpayer’s particular circumstances from an independent tax advisor.