HEAD-TO-HEAD: Franklin Templeton versus Neuberger Berman

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Florence Savage, Oreana Financial Services

Introduction

The potential of inflation is investors’ main concern this year, and the concomitant interest rate response of central banks.

Inevitably, it is the US economy and the behaviour of the Federal Reserve that is uppermost, and several US equity investors have prepared for higher government bond yields by shifting out of the growth stocks that have paid them so well in returns during the past decade, and rotated into cyclical, value stocks.

Apparently, a vast store of consumer disposable income is poised to swamp beleaguered service industries once pandemic-lockdown measures are withdrawn,

However, what worries some investors, such as Pictet Asset Management, is the possibility of high inflation coinciding with a slowdown in economic and corporate profit growth.

As a result, they and others, are turning to defensive areas such as utilities, and away from consumer discretionary and industrial sectors.

On the other hand, Blackrock Investment Institute thinks that a lower future path of short-term rates, even as inflation outpaces market expectations, supports its strategic preference for equities over bonds.

It sees the equity risk premium – its preferred gauge of equity valuations that accounts for changes in interest rates – as in-line with historical averages, suggesting the asset class is not overvalued.

The improving corporate earnings outlook has offset some of the impact of rising equity prices on valuations, argues Blackrock Investment Institute.

Against this background, FSA asked Florence Savage, investment analyst at Oreana Financial Services, to select two US equity products for comparison: the Franklin US Opportunities Fund and the NB US Multi Cap Opportunities Fund.

Source: FE Fundinfo, Morningstar. (Data in US dollars, 4 June 2021)

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