HEAD-TO-HEAD: Franklin Templeton versus Loomis Sayles

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INVESTMENT APPROACH

Both funds have a growth bias, but there is a difference in their approach to market capitalisation, according to Poole.

“The Franklin managers can invest in small- and micro-cap stocks, but the Loomis Sayles fund focuses exclusively on large- and giant cap stocks,” he said.

Grant Bower and his team running the Franklin fund look for “quality” companies, with enjoy high barriers to entry, have pricing power and exhibit management strength, noted Poole.

They have tended to favour the consumer discretionary, healthcare, and technology sectors. The fund’s largest exposure is to Amazon at 9.2%.

The strategy follows a bottom-up approach, and aims to find companies demonstrating accelerating growth and increasing profitability that are sustainable over the next three to five years.

The managers sell when fundamentals worsen, valuations reflect the stock’s potential growth, or better opportunities become available.

“There is a very strong growth tilt, and the managers look across the spectrum for opportunities,” he said.

The result is quite a large number of individual holdings (between 60 and 80 stocks), and turnover of 30% to 50% tends to be high.

In contrast, “the Loomis Sayles fund has a more concentrated portfolio of 30 to 40 stocks, and trades infrequently, with turnover of only 13% a year,” said Poole.

The manager, Aziz Hamzaogullari, looks for companies whose business models are hard to replicate and which have wide moats and strong management teams.

“He has a rigorous process, and gets to know the companies and their key staff well. This approach lends itself to conviction and to long-term holdings,” said Poole.

Individual holdings are restricted to 8% of assets each, and Hamzaogullari is keen to diversify the portfolio’s underlying business drivers. E-commerce, enterprise IT spending, and global payments firms have been recent allocations.

Identifying the sustainability of a company’s potential growth is a key aspect of his process given the strategy’s long-term investment horizon. In addition, Hamzaogullari and his team conduct in-depth industry analysis to understand its structural features and competitive environment.

Hamzaogullari aims to buy stocks when their valuation is near the team’s bear case estimate, and he sells once they have reached what they believe is their intrinsic value.

The strategy may allocate up to 20% of assets in non-U.S. stocks. That exposure had historically been around 5%, but increased to 17% by the end of last year.

Fund characteristics

Sector allocation:

Source: Fund factsheets, 30 September 2020

Top 10 holdings:

Source: Fund factsheets, 30 September 2020

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