Templeton strategic bond manager moves into emerging markets and high yield

Templeton Strategic Bond fund co-manager David Zahn is moving beyond traditional sectors and allocations to refocus the portfolio towards emerging market and high yield debt.

Zahn says: “The focus will be yield and we will be looking beyond the traditional sectors and allocations to generate a high income for the fund’s investors.

“For example, we have over 10 per cent allocated to South and Central America versus a peer group average weighting of just 0.7 per cent; in emerging Europe we have an allocation of 10.4 per cent, while the peer group average holding is just 0.31 per cent.

“To achieve diversification we needed to break from the traditional sector holdings.”

Zahn has avoided any exposure to UK gilts in the fund, highlighting low yields.

He says: “As far as return of principle, government bonds may be the safer place to be but yields there are extremely low, and given where inflation is in the UK your real yields are negative.

“For us, that is not a good strategy for long-term investing nor will it allow investors maintain a reasonably high level of yield.

Zahn adds: “Currently, this fund is yielding 4.94 per cent and that is an income target we believe we can maintain with a range.”