Templeton Global Ttl Ret N(acc)EUR-H1

Analyst Report
Morningstar's Take

by Hunter Beaudoin
Templeton Global Total Return benefits from a capable and well-resourced team, but concerns around risk management overwhelm the strategy’s strengths. It continues to earn a Morningstar Analyst Rating of Neutral across most of its share classes, including the Z(acc)USD clean share class. More expensive share classes maintain a rating of Negative, while cheaper share classes maintain a Bronze rating.

Lead manager Michael Hasenstab pioneered the team’s distinctive process and makes the final calls for the global macro suite of strategies. Longtime analyst and co-head of research Calvin Ho has served as comanager since December 2018, and a strong macro analyst team supports the duo. This relatively stable team’s strength lies in its deep global expertise and in its experience navigating difficult market environments.

The strategy’s high-conviction, long-term-oriented process is underpinned by thorough global rates and currency research. Given the team’s view on valuations, the strategy has been focused on emerging-markets debt combined with sizeable developed-markets currency calls for much of the past decade. Hasenstab and his team have always embraced concentration and been willing to back their views to the hilt. This differentiated approach gives the fund an edge over its benchmark and many peers, though in practice it has produced erratic results. Notably, the level and complexity of risk-taking here has increased in recent years. That’s 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.

Missteps in each of these areas, including the disappointing US Treasury short (removed in early 2020), a heavy focus on highly volatile Latin American debt, and long Japanese yen exposure have stung. Anticipating tougher markets, the team began shifting the portfolio's short yen position to a long stake in May 2019 along with other traditionally safe-haven currencies. These moves didn't blunt the pain of the early-2020 selloff as much as the team had hoped, and it kept to a more conservative posture in anticipation of more market turmoil rather than taking advantage of bargains in the downturn.

Poor currency plays continued to drive underperformance in 2022. While the team’s long-standing aversion to developed market duration was helpful as yields rose sharply for the year to date through August 2022, ongoing weakness in the Korean won, an ill-fated Russian rubles position, and uneven outcomes from several Latin American currencies were painful. The strategy’s Z(acc)USD share class’ 14.1% loss for the year to date ended August 2022 was roughly 60 basis points worse than its average global flexible bond Morningstar Category peer. The strategy lost 7.7% annualised over the past three years through August 2022, lagging the category benchmark, the Bloomberg Global Aggregate Bond Index, by 335 basis points and landing in the 98th percentile of category peers, which shows the heightened risks of this approach.
Morningstar Medalist Rating™This reputable team’s ambitious approach sports considerable risks.
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Morningstar Pillars
PeopleAbove 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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