Report Release Date: 19 Mar 2010
Analyst: Jackie Beard
Morningstar Opinion
We think Templeton Global looks good in theory but in practice it’s less compelling.
This fund has three named managers, all of whom are relatively new to the fund. The recent turnover doesn’t concern us too much as the wider Global Equity team is instrumental in running this fund. It’s a fairly stable and well resourced unit: Average tenure with the firm exceeds 10 years and the average level of relevant experience is 17 years. Its global reach is a plus, with members based in seven locations. Peter Moeschter and Heather Arnold are long-serving Templeton employees, so they are well versed in the process that underpins every fund under the Templeton brand. This process was created some 60 years ago and little has changed with its core beliefs. Indeed, they see this as a competitive advantage; in our opinion the reality is that those who have left the firm have created similar processes elsewhere but allowed them to evolve as markets change.
The process searches for undervalued stocks with the potential to double over five years. They use a quant screen to remove expensive stocks and then each manager or analyst sifts through their global sectors to find bargain names for further investigation. They analyse the past five years’ accounts and project forward five years, using different metrics to suit different sectors and industries. They focus their time on larger-cap stocks but will dip into mid-caps if an opportunity really stands out. In recent years, this has been much less common and mid-cap exposure has rarely exceeded 10%. A constant factor, though, has been the portfolio’s tilt to value names and this is no surprise, given their search for undiscovered value on a five-year view. They aren’t looking for names that will double overnight with high growth expectations as that’s just not their style. Turnover here is very low as they’re prepared to wait years for value to be realised.
Such a process should lead to steady incremental growth over the long term, and this is where we are disappointed. While we expect fluctuations on a calendar-year basis, over three and five years we think investors should be well rewarded; yet the fund trails its category average over both time periods to 28 Feb. 2010, by around 1 percentage point in each case and has exhibited average risk. Further, investors aren’t being compensated for the pain they have experienced in down years such as 2002 and 2008 in years when markets are stronger, such as 2006 and 2009.
So, while we like the resources and the process is disciplined, the results don’t add up to a compelling offering. We’re also concerned that the TER is so high — investors are paying a premium price for middling performance. We don’t think investors will go too far wrong with this fund, but we’re not confident in its ability to reward them over the long term. It receives our Standard rating.
*The above returns are in USD terms.
To learn more about the fund, please click here.
To read the HTML report, please click here.
