Franklin Templeton sees €3bn outflows in May

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Franklin Templeton saw outflows of €3bn (£2.5bn) from its European domiciled funds in May, but investors taking a short-term view on recent poor performance may miss a rebound, Morningstar warns.

The asset manager saw outflows across categories, but the Templeton Global Total Return fund and Templeton Global Bond fund, both managed by Michael Hasenstab, accounted for €930m, almost a third of outflows, according to Morningstar data.

Mara Dobrescu, associate director for fixed income strategies at Morningstar, says analysts remain positive on the funds for the long term despite the outflows, adding that they were “clearly connected to underperformance”.

The global total return fund has returned -4.6 per cent over the past year compared to the IA Global Bonds sector’s 15.8 per cent.

The global bond fund has returned 8.2 per cent over one year, compared to the Fixed Interest – Global sector, which returned 19.2 per cent.

Dobrescu says: “It’s the kind of fund where it’s really counterproductive to chase short-term performance, you really have to stick with it for the long term to reap the benefit of the approach. People who are pulling out now are probably going to miss the rebound.”

She adds that it’s important for investors to recognise some of the biases in the fund that might impact performance, such as Hasenstab taking early calls on undervalued bonds and holding them for a long time waiting for their thesis to play out.

“That’s what has helped the funds outperform over the long term, more recently that has prompted the funds to struggle,” says Dobrescu.

Hasenstab added to Mexico and Brazil in the third quarter last year, and also took aggressive currency bets, currently being short the euro and the yen due to quantitative easing.

Dobrescu says it is too early to predict what impact the UK’s vote for Brexit in the EU referendum will have on June flows figures or performance, but adds that a lot of noise will make it difficult to determine the long-term impact.

Franklin Templeton refused to comment on the fund flows. In its financial update for Q2 2016, the asset manager warned its assets under management was down 3 per cent to $742.6bn primarily due to $24.6bn of outflows.