HEAD-TO-HEAD: Allianz GI versus Franklin Templeton

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Conclusion

FE Fundinfo, which bases its assessment on a fund’s three-year history of delivering alpha, minimising relative volatility and producing consistent returns, has assigned a four-crown rating to the Allianz fund, but can only give the Franklin fund one crown.

Morningstar has awarded the Allianz product five stars based on historical returns, and with a neutral analyst rating. The firm awards the Franklin only two stars, and also a forward-looking analyst rating of neutral for its retail share class.

A few months ago, Morningstar wrote a white paper on high-income-paying funds and how they have profited from the interest of income-seeking investors faced with low (or zero) bank deposit rates in Asia.

“The study found that income-oriented allocation funds have distributed higher income-payout yields than equity and fixed-income funds, but that there are large differences between the funds in each asset class,” said DeFauw.

The $37.7bn Allianz Income and Growth Fund, one of the largest high-income-paying funds available for sale in Hong Kong and Singapore, “tops the list with an income-payout yield of around 7% and stands out in its ability to deliver a return above the income it paid out,” said DeFauw.

However, this was not the case for many other high-income-paying funds, which had to tap into their capital to meet payout obligations, he said.

Allianz distributes a fixed monthly coupon to investors, “but this payout was cut several times in recent years while short-term capital gains fund about 75% of the monthly distribution,” according to DeFauw.

The Franklin Income Fund also has share classes that pay out dividends to investors, and have managed to keep their  yield above 5% for over a decade now.

“Investors in both Allianz Income and Growth and Franklin Income should be aware that these funds have taken a hefty dose of (credit) risk to hit their income goals,” warned DeFauw.

“The risky portfolio design in Allianz, which is all about maximising yield, and the lack of a clear competitive advantage in Franklin Income’s process and team, keep our Morningstar analyst rating at Neutral for both funds,” he said.

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