Adviser warns clients off Templeton vehicle

Hargreaves Lansdown has advised clients to switch their money out of Templeton Global Emerging Markets, blaming disappointing performance.

The financial adviser firm says the fund’s bias towards financials and the energy sector has hit returns. It recommends that investors switch into Aberdeen Emerging Markets, run by Devan Kaloo and team.

The £15m Templeton vehicle is managed by its emerging markets team, headed by Mark Mobius.

Ben Yearsley, a senior investment manager at Hargreaves Lansdown, says: “We have held the fund since it launched in 2004. It has had periods of good performance – from launch to mid-2007 it was up 170%, and we would be happy with that on the face of it. But when you look at it in relation to Aberdeen Emerging Markets, performance is just not good enough.

“In the run-up to the peak in emer­ging markets, Franklin Templeton matched the performance of First State and Aberdeen but being value-biased funds you would expect them all to perform the same. The Franklin Templeton fund caught the run-up but it fell further than the others.”

In response, Franklin Templeton emphasises that its investment process pays no attention to benchmarks.

The group says in a statement: “Templeton invests in undervalued stocks with a five-year investment horizon. Its strategy is grounded in patience and the belief that on a short-term basis stocks overreact to news and noise. On a long-term basis, markets are efficient and patience will reward those who have identified undervalued stocks.

“However, we understand that many investors compare our fund to the MSCI Emerging Markets index. Our investment objective is not to follow the benchmark or to place emphasis on index constituents. We will continue to invest in those undervalued stocks we believe offer the best opportunities for capital growth over the long term regardless of benchmark weighting, emerging markets country or sector.”

At January 31, the fund had almost 18% in energy stocks, its largest sector weighting, and 12% in banks.

Yearsley says the fund’s skew towards the energy sector has hurt it as commodity prices have softened. The sector could revive as global demand picks up again, but the future of global financials is still uncertain, he adds.