There was no change to the Franklin International Rotation Model this quarter, so we review its recent performance.

International equities continued to perform well during the second quarter, although leadership shifted somewhat beneath the surface. The iShares MSCI ACWI ex U.S. ETF (ACWX) gained 11.2% during Q2, but the Franklin International Rotation Model significantly outperformed, rising 23.5% over the same period. The model's strong relative performance continues a trend that has been in place for several quarters and highlights the benefit of emphasizing the strongest areas within the international equity universe. Over longer periods, the model has also maintained an edge, generating annualized returns of 16.2%, 6.0%, and 7.5% over the last three, five, and ten years, respectively, compared to 15.1%, 5.4%, and 6.7% for ACWX.

International equities remain one of the strongest areas within DALI's asset class rankings, with leadership concentrated in select foreign markets. South Korea and Taiwan have continued to be standout performers, with the Franklin FTSE South Korea ETF (FLKR) and Franklin FTSE Taiwan ETF (FLTW) posting gains of 91.0% and 75.3%, respectively, since entering the model. While Brazil has lagged recently, the model continues to maintain exposure to some of the strongest international trends through its diversified country allocation.

The model also underwent a modest shift in regional exposure during the quarter. The Franklin FTSE Germany ETF (FLGR) was replaced by the Franklin FTSE Asia ex Japan ETF (FLAX), increasing the model's exposure to the broader Asia-Pacific region, which remains one of the strongest areas of the global equity market. At the end of the quarter, the Franklin International Rotation Model holdings were:

• Franklin FTSE Asia ex Japan ETF (FLAX)
• Franklin FTSE Brazil ETF (FLBR)
• Franklin FTSE Canada ETF (FLCA)
• Franklin FTSE South Korea ETF (FLKR)
• Franklin FTSE Taiwan ETF (FLTW)

This section of the report categorizes select Franklin ETFs by their respective broad group. Along with each group, you can view the Average Group Score, which is an average of the scores of all funds represented in that particular group. Those Franklin ETFs that meet or exceed the Average Group Score will be highlighted in green in order to easily view those ETFs that have superior strength within their respective group. You want to focus on those ETFs that exhibit superior strength when looking to add new exposure to a particular group.

The distribution curve places each ETF on a bell curve according to their respective degrees of overbought or oversold status using a 10-week distribution. ETFs that are statistically oversold will appear on the left-hand side of the bell curve, while those that have become statistically overbought will appear on the right-hand side of the bell curve. Perhaps the most useful attribute of this feature is that it displays the entire universe on the curve at one time to give us a general picture of whether the Franklin ETF universe is generally overbought on a near-term basis, or generally oversold. Our best opportunities are to buy strong relative strength ETFs that have regressed back toward mean conditions based on market weakness, or have become oversold based upon extreme market weakness. Weekly Distribution is a short-term gauge that is most helpful in timing entry and exit points, while the longer-term information of trend and relative strength is a more controlling factor in the decision of whether to buy or sell.

Legend:

• UPPERCASE indicates that the RS chart is on a buy signal.
• lowercase indicates that the RS chart is in a sell signal.
• GREEN lettering indicates the ETFs trend chart is on a buy signal.
• RED lettering indicates the ETF is on a sell signal.
• Box Color indicates the Sector Status Rating. Green = Favored, Yellow = Average, and Red = Unfavored.

The Franklin LibertyShares International Model is designed to identify major country and regional themes in the international marketplace through the use of the Point & Figure relative strength tools. For more information on the portfolio construction and back testing, see the model info file on the models page.  (Note: The Franklin LibertyShares ETF Models will be updated Thursday mornings by 9:30 am EST) 

Weekly Changes: 

* - Dates prior to 09/01/2018, which is when the Franklin LibertyShares ETF Model became available on the NDW Research Platform, are representative of when the position was added to the backtested model.