HEAD-TO-HEAD: Franklin Templeton versus Merian

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The Franklin Templeton and Merian funds versus their benchmark indices and sector in Hong Kong. The Franklin Templeton fund’s benchmark is the Russell 3000 Growth Index, while the Merian fund’s benchmark is the MSCI North America Index. Source: FE Fundinfo. In US dollars.

Performance

The expectation for the Franklin Templeton fund is that it should do well when growth stocks are in favour, but lag the market when value names are in vogue, according to Khizou.

However, the fund has underperformed its benchmark for several years.

“The fund has struggled to outperform the Russell 3000 Growth or even other growth indices. So stock selection has not proven to be successful on this fund,” Khizou said.

She also believes that the outsized allocation to large-cap companies may have caused the fund to lag. She added that the allocation toward large-caps has not changed over the past five years, even though the fund has the flexibility to invest across the market-capitalisation spectrum.

Discreet annual calendar performance

Source: FE Fundinfo. In US dollars

Turning to the Merian fund, Khizou said that given its agnostic investment style, it is meant to outperform the market regardless of whether growth or value stocks are in favour.

“It has actually shown the ability to outperform in various market conditions in the past,” she said.

However, she noted that the strategy may lag when there are swift changes in market conditions. She explained that the strategy’s “dynamic portfolio adjustment”, which looks to deploy major changes in the portfolio over a four-to-six week period, can get caught out.

“It has struggled a lot in 2019, as there were a lot of macro events in 2019, including concerns over the US economy as well as political events,” she said.

In terms of volatility, the Franklin Templeton fund is more volatile than the Merian fund on a three-year annualised basis, according to data from FE Fundinfo.

“The dynamic and flexible nature [of the Merian fund] has helped mitigate volatility and large drawdowns, as evidenced during the falling markets of early 2016,” she said.

Three-year annualised volatility

Source: FE Fundinfo

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