Templeton Global Bond I(Ydis)EUR |
Morningstar's Take
|26/08/2024by Saraja Samant
| Templeton Global Bond’s highly flexible approach is a plus, but risk management concerns overshadow. Lead manager Michael Hasenstab pioneered the team’s distinctive process and stands at the helm of Franklin Templeton’s global macro suite of strategies. Longtime analyst and co-head of research Calvin Ho has served as comanager since 2018, and a solid macro analyst team supports the two. This support team has recently seen some turnover but continues to boast deep global expertise and experience in navigating difficult market environments. Thorough global rates and currency research underpins the strategy’s high-conviction, long-term approach. In line with the team’s macro views, the strategy has emphasized exposure to emerging-markets debt for much of the past decade, though it recently started adding to developed-markets duration in early 2023 to reap the benefits of higher interest rates. Hasenstab and his team have always embraced concentration and have been willing to back their views to the hilt. This benchmark-agnostic differentiated approach makes the fund stand out among its global bond Morningstar Category peers, though in practice it has led to erratic results. The level and complexity of risk have increased in recent years. That has included a short on US Treasuries from 2016 to early 2020 that led to a negative overall duration, ample concentration among its emerging-markets local bond positions, and aggressive currency positions that can be susceptible to prolonged periods of fickle markets. Since mid-2021, the team has committed to keeping the strategy’s option-adjusted duration positive, though other significant concentration risks remain. Missteps have stung in recent years, including the disappointing US Treasury short (removed in early 2020), a heavy focus on highly volatile Latin American debt, and long Japanese yen exposure. Citing slowing economic growth and thus stretched US dollar valuations, the team made a large bet against the US dollar, mainly in favor of Asian currencies, starting in the second half of 2022; it has continued to hamper performance. To be sure, the team’s long-standing aversion to developed-markets duration was ultimately rewarded as yields rose sharply throughout 2022: The strategy outperformed most peers and its category benchmark significantly. It has also had success in the past with its contrarian bets such as Ireland during the euro crisis or Ukraine through its 2015 debt restructuring, but more recent positions haven’t borne fruit yet. While it can make up ground in a hurry, some competing strategies can better utilize a benchmark-agnostic mandate to achieve results commensurate with their risks over time. |
Big tail risks overpower this strategy’s strengths.To find out how Morningstar rates a fund click here.
| Morningstar Pillars | |
| People | Above Average |
| Parent | Average |
| Process | Average |
Morningstar Medalist RatingMorningstar assigns the Medalist Rating to funds that are qualitatively and quantitatively assessed through manager research and algorithmic processes. The assessment turns on three key “pillars” – People, Process, and Parent – that yield an estimate of how well a fund will perform before fees but after adjusting for risk.
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