Templeton Global Ttl Ret N(Mdis)EUR-H1

Analyst Report
Morningstar's Take

by Mike Mulach
While Templeton Global Total Return’s well-resourced team stands out, risk management concerns overwhelm the strategy’s strengths.

Lead manager Michael Hasenstab pioneered the team’s distinctive process and makes the final calls for 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 duo. This team has recently seen some turnover but continues to boast deep global expertise and experience in navigating difficult market environments.

Leaving global bond benchmarks aside, the strategy’s high-conviction, long-term-oriented process is underpinned by thorough global rates and currency research. In line with the team’s macro views, the strategy has emphasized exposure to emerging-markets debt for much of the past decade. Hasenstab and his team have always embraced concentration and have been willing to back their views to the hilt.

However, while this differentiated approach offers some advantages over its benchmark and many peers, the team has not always managed its flexibility well. Notably, the level and complexity of risk-taking here have increased in recent years. That has included a short position in U.S. 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 bets that can be susceptible to prolonged periods of underperformance.

Missteps in each of these areas, including the disappointing U.S. Treasury short, a heavy focus on highly volatile Latin American debt, and long Japanese yen exposure have stung at different times over the past five years. While the team’s long-standing aversion to developed-markets duration was helpful as yields rose sharply throughout 2022, bets on the Ghanaian cedi, Russian ruble, and Argentinian peso stung. To be fair, the strategy still outperformed its Bloomberg Multiverse Index benchmark in 2022 but did so with much higher volatility.

The team’s willingness to court elevated volatility has been detrimental to performance over the long term: Over the past decade, this strategy has among the worst absolute and risk-adjusted returns (as measured by Sharpe ratio) in its Morningstar Category. 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.
Morningstar Medalist Rating™Unique and difficult to find a place for this in your portfolio.
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Morningstar Pillars
PeopleAbove Average
ProcessBelow 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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