Matthew Moberg, Franklin Templeton Investments
The morning after the S&P 500 suffered its worst one day fall since Black Monday in October 1987 might not be an obvious time to market a new growth-oriented product in Hong Kong.
However, Franklin Templeton, which agreed last month to buy rival fund group Legg Mason in a deal worth almost $4.5bn, is apparently looking ahead.
“The [Franklin] Innovation Fund has a long-term investment horizon and we believe that innovation is a sustainable theme and trend for years to come,” a firm spokeswoman told FSA.
“Our target investors are those who believe in the long-term prospects of those companies that embrace innovation,” she added.
The Luxembourg-domiciled fund was incepted in November 2019, and in its short life has lost less (-2.77%) than both its Russell 1000 Growth benchmark (-6.03%) and its international equity fund peer average (-18.96%), according to FE Fundinfo data.
The portfolio manager is Matthew Moberg, who runs the same strategy for a larger fund in the US.
“We look for companies with sustainable growth trends which we don’t believe are fully recognized by market participants. These companies cater to the evolving ways in which we shop, communicate, travel, experience technology and live our lives,” he said in media statement.
“Our view may be very different from that of the market, as selecting securities for an innovation-based portfolio requires an unorthodox approach,” he added.
Nevertheless, the fund’s most recent public fact sheet (29 February 2020) shows that its top five weightings among 143 individual holdings are hardly unknown names or without fans.
They include Amazon (6.30%), Microsoft (3.92%), Alphabet (3.55%), Mastercard (2.80%) and Visa (2.27%). Others that make up the fund’s top 10 are Service Now, Shopify, Facebook, Salesforce and Adobe.
The fund has only raised around $4m from European investors since its initial launch, so the manager must hope that the fund’s authorisation by Hong Kong’s Securities and Futures Commission for sale to retail investors in the territory will give it a cash injection.
Franklin Templeton is talking to a number of distributors, including retail banks, insurance companies and fund platforms, and there isn’t a specific date for the end of initial marketing, according to the spokeswoman.
“Once we have ascertained interest from our distribution partners, we would [also] seek to register the fund in Singapore,” she added.
Thematic fund popularity
The firm’s regional head and CEO for Greater China, David Chang, seems sanguine about the fund’s appeal.
“In Hong Kong, we have seen increasing client interest in tech-themed strategies that address technology disruptions in many industries and key themes including; robotics, intelligent machines, gene sequencing, and healthcare,” he said in the statement.
In fact, Chang’s optimism might be justified – or it would be in normal market conditions.
A Morningstar report published in February found that thematic funds have been hugely popular among fund investors in Asia, with technology-related themes such as robotics, artificial intelligence and big data gaining a lot of traction in recent years.
There are now 20 active and passive thematic funds domiciled in Hong Kong or Singapore, according to Morningstar data. These include four products managed by Mirae, three by UOB, two each by Deutsche and Premia Partners and one fund each managed by Allianz GI, BEA Union, China AMC, EFG and Nikko.
However, the five largest thematic funds available in Hong Kong (and Singapore) are managed by Pictet Asset Management, which also dominates the thematic space in Europe. Its multi-billion dollar products focus on investments in robotics, automation, cybersecurity, big data and broad technology themes.
The collective AUM in thematic funds worldwide nearly tripled to about $195bn from $75bn during the three years to 31 December 2019, representing 1% of total global equity fund assets. There were 154 new thematic funds launched last year, bringing the total to 923, according to Morningstar’s “Global Thematic Funds Landscape Report”.
But, Wing Chan, Morningstar’s director of manager research practice for Emea and Asia, told FSA last month that the long-term performance figures for thematic funds in general are unflattering, and investors tend to switch out of funds when the themes are not in favour, resulting in high turnover.
Only 45% of all thematic funds launched before 2010 survived a decade later, and of those that survived, just a quarter outperformed the MSCI World Index over that 10-year period, he noted.
Franklin Innovation Fund vs sector average and Russell 1000 Growth benchmark
Source: FE Fundinfo. Returns since fund launch 8 November 2019 in US dollars