Although both the Franklin Templeton and the OMGI funds invest in US equities, the main difference lies in the investment process.
The Franklin Templeton fund is a traditional growth product, while the OMGI fund makes use of a quantitative process, according to Khizou.
“So you have [OMGI’s] quant fund, and the Templeton fund that makes use of a bottom-up fundamental research approach.”
The Templeton fund aims to identify companies with long-term sustainable growth characteristics. The emphasis is on firms with potential to grow earnings as well as free cash flow over the long term. In addition, earnings should be sustainable.
Khizou said that the manager of the Templeton fund, Grant Bowers, also filters for companies in industries with high barriers to entry, which tends to support pricing power, market share gains and improving margins.
The OMGI fund makes use of a quantitative process that draws on five distinct factors, according to Khizou. These factors are market dynamics, valuation, sustainable growth, investor sentiment and company management.
The factors have dynamic weightings that shift toward the stocks that are likely to perform well in the current market environment.
The funds’ different investment processes explain their portfolio differences. Because of Templeton’s tilt toward growth stocks, it has a huge weighting in technology stocks, Khizou said.
The OMGI fund does not tilt toward a particular style because of its quant process. Any style biases reflected in the current portfolio is only temporary, Khizou added.
| Equity sectors |
Franklin Templeton |
OMGI |
Sector average* |
| Defensive |
16.4 |
29.9 |
24.6 |
| Consumer defensive |
4.6 |
7.1 |
7.5 |
| Healthcare |
11.8 |
16.3 |
14 |
| Utilities |
0 |
6.5 |
3.1 |
| Sensitive |
52.8 |
37 |
40.4 |
| Communication services |
8.4 |
0.7 |
3.5 |
| Energy |
1.8 |
2.4 |
5.7 |
| Industrials |
6.6 |
10 |
11.2 |
| Technology |
36 |
23.9 |
20 |
| Cyclical |
30.8 |
33.1 |
35 |
| Basic materials |
2.6 |
4.9 |
3.5 |
| Consumer cyclical |
10.7 |
12.9 |
11.4 |
| Financial services |
14.9 |
14.9 |
16.5 |
| Real estate |
2.5 |
0.3 |
3.6 |
Source: Morningstar. *Sector is US flex cap equities
The Templeton fund is also the more concentrated of the two, with 77 stocks and a turnover rate of 50% a year, while the OMGI fund has 200 names and a turnover rate of 400%-500% a year, Khizou said, noting that quant funds usually have high turnover rates.
