Manager Research

Our UK team recently carried out a review of the Franklin Templeton Emerging Markets fund and the rating was changed from a Tier 2 to a Tier 3.  The fund has underperformed over most cycles and at first it would appear that the rationale for the poor rating is down to poor performance.  However, our concerns are deeper than that – the core concern is that the fund does not do what it says it does.  It is a value fund that has provided no downside protection and has underperformed through cycles when value investing has been in favour. This is something that was highlighted in the below interview with Rory Maguire from Fundhouse UK.
 

Mobius team given damning verdict by analysts

Fund analysts have delivered a damning verdict on Franklin Templeton's emerging market team, headed by Mark Mobius, criticising its stock-picking abilities and questioning whether the veteran fund manager has too many other commitments outside fund management.

Rating agencies Fundhouse and Morningstar have both expressed concerns about management of Franklin Templeton's emerging market fund range, with the Templeton Global Emerging Markets vehicle coming in for particular criticism.

In a report by Fundhouse, seen by Ignites Europe, the ratings agency accuses Franklin's emerging market team of allocating to investments “that have underdelivered relative to their opportunity set, [which] has caused substantial long-term underperformance”.

The report adds that Mr Mobius, who is the lead portfolio manager on the Global Emerging Markets fund, has displayed “no obvious sign of stock-picking skill”.

“Since launch the fund has delivered around 74 per cent of total return, when the market is up three times more (around 210 per cent)," according to the Fundhouse report.  “This remarkable lack of added value seems very hard to claw back and clients who have been patient […] have not been rewarded.”

The fund's management team is also criticised for increasing conviction in its stocks by reducing the diversity of the portfolio.  According to Fundhouse, the fund’s portfolio has shrunk from holding 150 companies in 2008 to around 41 currently.  In addition Fundhouse questions “just how effective Mark Mobius is”, suggesting that he has “many distractions” such as writing books and speaking engagements.  “He seems to be a marketing-oriented investor,” claims its report.

Morningstar has not assessed the Templeton Global Emerging Markets fund, which is a UK open-ended investment company. However, it has given a negative rating to the Luxembourg-domiciled Templeton Emerging Markets vehicle.
Morningstar says it is “not impressed” by the fund or its portfolio managers, Dennis Lim and Tom Wu, but adds that it does not hold Mr Mobius responsible for any underperformance.  “[Mr Mobius] tends to be involved in the high-level stuff, he’s more a marketing figure,” says Germaine Share, analyst at Morningstar Investment Management Asia.  “The thing about [Mr] Mobius is that he hasn’t been involved in the day-to-day running of the fund for quite a while, even though his name is on the tin,” she says.  “But, having said that, he is active a lot as chairman of the Templeton Emerging Markets group,” she adds.

Ms Share says Morningstar still has a negative view of the fund, adding that portfolio allocators Mr Wu and Mr Lim are “not the most impressive managers we’ve met”.  “The fund has not performed well in either value or growth markets and over 10 years the fund has been consistently underperforming,” she says.

High fees have also proven a bone of contention among analysts.
“Franklin Templeton charges very expensive fees in general,” says Ms Share.  “The [total expense ratio on Templeton Emerging Markets] in 2014 was 2.51 per cent, more than 50 basis points more expensive than the average emerging market fund.”

Fundhouse says the UK Oeic’s performance has been poor enough to justify refunding investors.
“Are its clean fees fair?” it asks. “No.”

Franklin Templeton has declined to comment.

Broker Numis Securities last month removed Franklin’s Emerging Markets Investment Trust, known as Temit, from its recommended list.   “[Mr] Mobius has a good track record, but he’s struggled over the last 12 to 18 months,” says Ewan Lovett-Turner, director of investment companies research at Numis.  He adds that he remained unconvinced by the US firm’s explanations of why the vehicle has underperformed.

Last month Franklin announced that Mr Mobius would step down as lead manager of Temit after 26 years at the helm of the £2bn (€2.8bn) fund.  The 78-year-old star manager has run the trust since its launch in June 1989.  Mr Mobius will hand over control of the trust to Carlos Hardenberg, who is currently based in Turkey but will move to London at the beginning of October to run the strategy.

Franklin says the decision to replace the emerging market veteran with Mr Hardenberg was made jointly by the company and the trust’s board.

Written by Aime Williams - 17 August 2015
Source: Ignites Europe