Prudent giant straddles the globe

Franklin Templeton has a solid provenance and a group ethos that persists to this day, including an active approach to expansion and a commitment to choice and prudence, writes James Smith.

Anyone seeking an insight into Franklin Templeton’s philosophy and investment ethos need look no further than the company name. While the Templeton moniker is well known – at least in financial circles – as John Templeton, a veteran fundamental investor, the Franklin part comes from no less a figure than an American founding father.

The company traces its history back to the 1940s, when the Johnson family founded Franklin in New York. They named the firm for Benjamin Franklin, a man who epitomised frugality and prudence when it came to saving and investing.

Initially focusing on American bonds, the firm eventually moved to the West Coast and broadened out to run equities, growing organically and via acquisitions. Key among these was the deal to buy John Templeton’s business in 1992, providing early inroads into Britain and Europe.

This deal also brought Mark Mobius, an emerging markets investor, into the firm. He launched his Templeton Emerging Markets investment trust (Temit) in 1989. (Focus continues below)

Ian Wilkins, the head of UK distribution at Franklin Templeton, says the policy of strategic acquisitions has continued with the purchase of Rensburg Fund Management in January this year. “The Rensburg deal also highlights our strategy of think global, act local, filling a gap in our range on the UK equity side,” he adds.

With offices across the world and more than $734 billion (£468 billion) in assets under management, the firm has a global reach and size not always appreciated by British investors. Wilkins says the group can bring this to bear for acquired companies such as Rensburg, as Franklin Templeton’s size recommends it for tie-ups with banks and other large distributors.

He also notes the group’s prudence when it comes to corporate behaviour, with a recent upgrade to AA- by Standard & Poor’s and billions in cash on the balance sheet.

“We came under fire pre-credit crunch for being too conservative but were able to open offices in 2008 as many firms were closing them,” he adds.

Wilkins says the group aims to offer what he calls credible choice, with distinct teams offering different strategies. “On equities for example, we have teams running growth or value styles and sticking to that,” he adds.

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“Our view is that if investors are allocating capital to us, there is nothing worse than managers switching their approach.”

Franklin Templeton’s 17-strong Oeic range is the smallest of its so-called asset buckets, with Mobius’ Temit larger by itself at approaching £2 billion.

It is dwarfed by the group’s Sicav, which includes 69 funds and at $200 billion is among the largest in Luxembourg.

If a fund has a potentially global audience – Frontier Markets for example – the group will launch a Sicav whereas strategies central to British investors, such as UK and European equities or domestic bonds, would sit in the Oeic.

Wilkins says that with tax parity between on- and offshore funds, and greater accessibility and third-party endorsement from firms like OBSR for the latter, Sicav inflows should increase.

“Our experience shows institutional and discretionary clients have no issue buying Sicavs and the one channel where take-up has been slow is advisers,” he adds. “As offshore funds become available on platforms and win more ratings, we would expect business to rise.”

This thinking extends to Temit, which has grown to be one of the largest emerging market funds without having a foothold in the adviser market.

“Again, while wealth managers and discretionaries have been happy buying investment trusts, this part of the market has been largely ignored by IFAs and we would expect that to change post-RDR [retail distribution review],” adds Wilkins.

Franklin Templeton aims to increase its share of the adviser market, with most of its business in America and markets like Germany coming through this channel. Wilkins says the acquisition of Rensburg will help, with the group’s Leeds-based team of UK equity managers popular with advisers.

As with most things, much of this has been down to performance and the new parent has always stressed the team will be left to continue as they have for years. Of the Rensburg funds under the Franklin banner, UK Mid Cap and UK Managers’ Focus are top quartile over three years.

“It is difficult to succeed in the UK without a strong UK equity franchise and Rensburg gives us that to build on,” adds Wilkins.

While the institutional, discretionary and adviser markets all require different products, Wilkins says common denominators from Franklin’s range are the Rensburg funds, Temit and its global bond offerings. Templeton Global Bond for example, run by Michael Hasenstab, is among the largest fixed interest offerings in the world at more than £27 billion in assets.

Wilkins sees opportunities coming out of what he calls the ’orderly disruption’ of the RDR. Apart from greater demand from the group’s Sicav and Temit, he also sees investors increasingly shift their focus from performance to risk.

“There is a growing feeling advisers will not face regulatory criticism for recommending a low-risk fund with ­moderate performance whereas higher-risk offerings are potentially dangerous,” he adds.

“This is increasing opportunities for groups to partner up with advisers to offer risk-graded multi-asset vehicles. Meanwhile, widespread de-risking has also created demand for outcome-orientated products and we are looking at ways to tap into these trends.”

The group appointed Samer Habl from Mellon as head of global tactical asset allocation last year, and has already rolled out products for the Canadian and American markets.

”We came under fire pre-credit crunch for being too conservative but were able to open offices in 2008 as many firms were closing them”

On other industry developments, the group is well advanced in its post-RDR share classes but it sees little advantage in announcing these early. “While much of the RDR remains subject to change, the one thing that seems set in stone is the ban on commission from 2013 so groups need clean share classes or will be out of business,” adds Wilkins.

For his part, Wilkins sees a few channels requiring share classes, with wealth managers/professional investors and platforms key. However, he also predicts a potential resurgence in advisers coming direct to groups outside of platforms as they strive to avoid fees.

Among advisers, Meera Patel, a senior analyst at Hargreaves Lansdown, highlights the Rensburg acquisition as a key development for the group in Britain.

In the firm’s Wealth 150 list of favoured funds, three of 17 UK All Companies portfolios come from the Leeds-based manager, with UK Managers Focus, UK Mid Cap and UK Select Growth all featured. Patel also highlights the strong track record on Templeton Global Bond, another Wealth 150 pick, over five and 10 years.

“Elsewhere, I struggle to understand why Mark Mobius, a guru in emerging markets, has a top investment trust, but his Oeic has performed so poorly,”
she adds.

“My issue with the firm has been whether they are dedicated to the retail market but the Rensburg deal is a step in the right direction.”

In response to the Mobius question, Wilkins says the last few volatile months have not helped performance but comparisons between open and closed-ended funds ignore the differences between the vehicles.

“The key factor here is cashflows – open-ended funds have to deal with redemptions as they come, particularly in periods of investors flying to ’quality’, which they tend to do by selling the most liquid stocks,” he adds. “Investment trusts on the other hand will not suffer this kind of disruption, which is beneficial to performance in emerging and frontier markets.”

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FRANKLIN TEMPLETON is a global asset management firm, with offices across the world and more than $730 billion (£465 billion) under management.