Franklin Templeton is the Australian division of Franklin Resources, one of the largest asset management groups in the world, with close to AUD$1 trillion under management and operations spanning 170 countries. The business was first established in Australia in 1987 and has operations spanning all asset classes including Equity, Fixed Income, Alternatives and Multi-Asset. Franklin’s investment philosophy is embedded with ESG or Environmental, Social and Governance considerations and they are signatories of the UN Principles for Responsible Investment initiative.
Why Franklin Templeton? Franklin is a leader in the active management of global equities and this fund has been selected due to the experience of the Lead Portfolio Managers, John Remmert and Don Huber, both New York-based and with 32- and 37-years’ experience respectively. Franklin’s long-term performance stands out, delivering on average 3.7% per annum above its benchmark since 2008, however, it is the investment philosophy driving these returns that we believe warrants an investment. The managers have identified an arbitrage opportunity resulting from the exponential growth of passive and index investing. The trend has seen investor capital flow into the largest businesses by market cap, leaving medium and smaller sized companies trading at substantially more attractive levels. They have successfully focused on the medium sized company sector in the US and around the world, which includes business ranging from $3.5 to $30bn and falling just outside the S&P 500. Management focus their due diligence on identifying companies with strong free cash flow, superior management teams and those able to growth their profits off a lower base without excessive leverage.
Why Value Bucket: The Franklin Global Growth Fund meets the objective of the Value Bucket as the managers seek to generate a return exceeding sharemarket benchmarks with the majority delivered via capital growth rather than income. Importantly, the purpose of the Value Bucket is twofold, being to identify undervalued companies but also to identify those companies with growth opportunities that aren’t fully reflected in current prices.
Performance & Top Holdings: The fund’s performance in 2019 was exceptional, leading global equity managers with a return of 37.25% for the calendar year, exceeding the benchmark by a further 10%. Of more value has been the funds performance in 2020, where it delivered a negative return of 1.8% in February, compared to the benchmark of -4.9% and has thus far outperformed the benchmark in March. This has been delivered via their strategy to build a high conviction portfolio of 35-40 companies with limited correlation between their revenue and profit sources. They manage risk by ensuring an even distribution of holdings, with weightings between 1.5% and 4.0%. The portfolio is well diversified, with its largest weighting to IT business (24% vs. 17% for the benchmark) albeit via the likes of Visa and ZScaler, rather than Facebook or Microsoft. Consumer Discretionary (18% vs. 10%) and Industrials (14% vs. 11%) make up the other key sectors. Some of the major investments include: Asset manager Partners Group, TAL Education in China, Costar Group and Danaher Corp in the US and Regeneron Pharmaceuticals.
This fund appears to be an excellent one for those seeking greater global diversification, at a reasonable cost and with exposure to those part of the global economy most leveraged to a post-COVID 19 improvement.