HEAD-TO-HEAD: Franklin Templeton versus Legg Mason

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Investment approach 

Both the Franklin Templeton and Legg Mason funds invest in Asia bonds.

Both offerings have the flexibility to invest in dollar- and local currency-denominated bonds and as a result the products are different in terms of their structure.

Top five currency exposure

Source: Fund factsheets

The Franklin Templeton product is a pure sovereign bond fund, while the Legg Mason fund, though considered a sovereign bond product, has the flexibility to allocate assets to corporate bonds.

“Both have multiple drivers of returns, such as duration and currency. But the Legg Mason fund uses credit selection as well. The Templeton fund avoids corporates,” Ge said.

According to Ge, the Legg Mason fund historically has invested 20%-30% of its assets in corporate bonds. As of the end of April, corporate bonds make up 24.67% of the fund’s portfolio, according to its fund factsheet.

Another key difference between the two funds is that the Franklin Templeton fund takes more off-benchmark positions when compared with the Legg Mason product.

“The Templeton product is more benchmark-agnostic whereas the Legg Mason product is more benchmark-aware,” Ge said.

He added that the Franklin Templeton fund’s manager, Michael Hasenstab, who also manages global bond portfolios, is known for having contrarian views.

For example, the Franklin Templeton offering has zero allocation to China bonds, which compares to around 25% exposure of its benchmark, the JPM GBI-EM Broad Diversified Asia Index, according to Ge.

“The team views that the story about China’s shift from an investment-led to a consumption-focused economy has played out, and the higher focus on higher value products has led to higher labour costs.

“The team also noted that the increasing labour costs and bond yields do not justify direct exposure,” Ge said.

Top five country exposure

Source: Morningstar

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