HEAD-TO-HEAD: Franklin Templeton versus Neuberger Berman

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Investment approach

The styles and strategies of the two US equity funds are very different, according to Savage.

“The Franklin fund is distinctly growth-focused, whereas the Neuberger Berman (NB) managers tilt heavily towards the value and cyclical end of the spectrum,” she said.

“The different objectives are reflected in their investment processes and targets,” Savage added.

The Franklin strategy follows a bottom-up approach that aims to identify firms likely to benefit from secular growth trends that fit the managers’ growth, quality, and valuation criteria. They look to invest in companies showing accelerating growth and increasing profitability that are sustainable over the next three to five years.

The team, led by Grant Bowers, consider barriers to entry, balance sheet strength and management ability are important.

Companies are assessed through valuation metrics such as price/earnings and EV/EBITDA, based on a three- to five-year outlook; stocks are sold when fundamentals deteriorate or when better opportunities become available.

The portfolio typically holds 60-90 stocks, and the growth and quality criteria result in a portfolio that exhibits a strong growth bias relative to the Russell 3000 Index.

Portfolio positioning has backed the consumer discretionary, healthcare, and technology segments in recent years, and “there is heavy weighting to the information sector,” said Savage.

“The strategy’s focus on large cap, growth stocks means that it has little flexibility to switch into cyclical sectors even as they gain wider popularity,” she added.

The NB fund, in contrasts, invests across the market-cap and style spectrums.

Free cash flow analysis and valuation are the most important factors that the team, led by Richard Nackenson, look at in picking stocks.

Holdings fall into three buckets: special situations, including restructurings, spin-offs, and new management teams; opportunistic stocks, which have become cheap for a tangible but temporary reason; and classic stocks, with proven management teams and consistent free cash flows and long-term performance.

“As a result, the portfolio tends to be far more diversified than the Franklin fund,” said Savage.

The manager and the analysts start with an initial universe of 2,000 stocks, narrowing it down to the 150 using proprietary screens and preliminary analysis. These are whittled down using financial and valuation models, and Nackenson chooses between 30 and 40 stocks for the portfolio.

Fund characteristics

Sector allocation:

Source: Fund factsheets, *30 Apr 2021, **29 May 2021

Top 10 holdings:

Source: Fund factsheets, *30 Apr 2021, **29 May 2021

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