HEAD-TO-HEAD: Franklin Templeton versus Legg Mason

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Investment approach

Although both Templeton and Legg Mason fall under the Franklin Templeton umbrella, Franklin Templeton only acquired Legg Mason in July 2020.

Even after the purchase, Franklin Templeton has said it will keep Legg Mason’s identity and autonomy.

Even though both funds are categorised as global fixed income under the FE fundinfo category, the two products have stark differences in terms of asset allocation.

They both have a top-down and bottom-up approach, but Templeton focuses more on macro, while Legg Mason relies more on bottom-up relative value, Poole noted.

The Templeton fund adopts a high conviction and high concentration approach that is underpinned by strong global rates and currency research, noted Poole.

That research includes top-down macro, bottom-up security research, sector analysis and quantitative models. There is a clear currency research process – and the high conviction process results in currency taking up a significant amount of the risk.

In contrast, there is no corporate credit in the portfolio as the team view valuations as being unattractive.

The fund is able to invest across sovereign, credit, rates and currencies – and focuses on countries with solid and improving fundamentals. As a result, the fund has a focus on emerging market debt.

Looking at geographical allocations, the top three allocated countries are all within the emerging market universe. They are South Korea (15.24%), Brazil (12.56%) and Indonesia (8.91%).

Developed market exposure is minimal and is concentrated in Japan (7.06%) and the UK (5.91%).

The fund also invests a sizeable 79% of its assets in local currency government or agency bonds, with 62.67% in investment grade bonds and 16.33% in high yield.

In contrast, Legg Mason aims to outperform Libor by 2-3%.

Although the team also adopts top-down macro analysis as well as relative value analysis across the fixed income spectrum, the driver of the fund’s allocation and returns has been its bottom-up relative value assessment.

Despite stating that the fund must have a minimum 30% invested in investment grade fixed income, the aggressive return target means the fund is dominated by EM and sub-investment grade credit.

According to the fund’s spreadsheet, 13.57% of the fund’s assets are invested in local emerging markets, while 13.25% are in US high yield.

The Legg Mason fund has the largest country exposure in the US (36.79%) followed by the UK (6.66%) and Mexico (5.27%).

37.61% of the fund’s AUM is invested in cash and cash equivalents.

“While both funds can take currency risk, it is Templeton that relies most heavily on currency within its risk budget,” said Poole.

“Legg Mason has a significant exposure to corporate credit, while Templeton’s conviction call has left it with no exposure. Finally, Legg Mason has a much greater exposure to developed markets, while Templeton has around two-thirds of its fixed income exposure in emerging markets.”

 Fund characteristics

Country allocation:

Source: Fund factsheets, 31 August 2022

Sector allocation:

Source: Fund factsheets, 31 August 2022

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